Question

Kraven Corp. borrows $100,000 by signing on a 1-year, 8% promissory note from General Finance Company and assigns $120,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the receivables assigned. The journal entry for Kraven to record the borrowing will include a

Answer 1

Answer and Explanation:

The journal entry is shown below:

Cash Dr $98,800

Finance charge Dr ($120,000 × 1%) $1,200

       To Liability - Financing Arrangement $100,000

(being receipts of cash is recorded)

Here cash and finance charge is debited as it increased the assets and expenses and liability is credited as it also increased the liabilities. Also, the cash & expenses contains normal debit balance and liabilities contains normal credit balance