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 $420,000. 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 0.60% of the total accounts assigned. On July 31, Salen Company received a statement that the finance company had collected $224,000 of these accounts and had made an additional charge of 0.60% 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 $140,000 and had made a further charge of 0.60% 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 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

July 1

Cash

Interest Expense

Notes Payable

July 31 (To record the collection of accounts)

Notes Payable

Accounts Receivable

July 31 (To record the interest)

Interest Expense

Interest Payable

August 31

Cash

Interest Expense

Interest Payable

Notes Payable

Accounts Receivable

Explanation / Answer

Journak Entries

Date Particular Debit Credit July 1 Cash A/c Dr. $333480 Interest Expenses A/c Dr. $2520 To Notes Payable $336000 July 31. Notes payable A/c Dr. $224000 To Accounts recievable $224000 July 31 Interest Expense A/c Dr $1176 To Interest Payable $1176 Aug 31 Interest expense payable A/c Dr. $840 Interest expense A/c Dr. $336 To Cash A/c Dr. $1176 Aug 31 Notes payable A/c Dr. $140000 To Accounts recievable A/c $140000

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