Salen Company finances some of its current operations by assigning accounts rece

Question

Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2014, it assigned, under guarantee, specific accounts amounting to $150,000. The finance company advanced to Salen 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of 0.50% of the total accounts assigned. On July 31, Salen Company received a statement that the finance company had collected $80,000 of these accounts and had made an additional charge of 0.50% of the total accounts outstanding as of July 31. This charge is to be deducted at the time of the first remittance due Salen Company from the finance company. (Hint: Make entries at this time.) On August 31, 2014, Salen Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $50,000 and had made a further charge of 0.50h of the balance outstanding as of August 31. Make all entries on the books of Salen Company that are involved in the transactions above. (If no entry is required, select ?No Entry? for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Explanation / Answer

The journal entries are as follows:

__________

Notes:

Total Cash Collected = 50,000 - 350 (Finance Charge) - 100 (Finance Charge) - 40,000 (Balance Amount of Notes Payable) = $9,550

Date Account Titles Debit Credit 01/07/01 Cash 119250 Finance Charge (150,000*.50%) 750 Notes Payable (150,000*80%) 120000 1st July Notes Payable $80,000 Accounts Receivable $80,000 31st July Finance Charge (70,000*.50%) $350 Finance Charges Payable $350 31st August Notes Payable $40,000 Cash $9,550 Finance Charge (150,000 – 80,000 – 50,000 )*.50% $100 Finance Charge Payable $350 Accounts Receivable $50,000

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