Question

On March 1, 2017, Beijing Pasta Company assigns $1,400,000 of its accounts receivable to Bank of China as collateral for a $1,000,000 note. Bank of China assesses a finance charge of 1 percent of the accounts receivable and interest on the note of 12 percent. Which of the following is correct regarding this transaction

Answer 1

The answer is On March 1, 2017, Beijing Pasta Company will debit Interest Expense for $14,000.

Step-by-step explanation:

Interest expense is the is the cost of funds loaned to a business by a bank or lender. Here a loan is taken from Bank of China by the Beijing Pasta Company.

Bank of China assesses a finance charge of 1 percent of the accounts receivable we can calculate that this ammount is $14,000 on March 1, 2017.