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During 2023, Sandhill had the following transactions: 1. Total sales were $495,000. Of the total sales amount, $240,000 was on a credit basis. 2. On June 30, a $45,000 account receivable of a major customer was settled, with Sandhill accepting a $45,000, one-year, 11% note, with the interest payable at maturity. 3. Sandhill collected $190.000 on accounts receivable during the year. 4. At December 31. 2023, Cash had a balance of $17,000, Inventory had a balance of $84,000, Accounts Payable was $79,000, and Acerued Liabilities was $16,000. Part 2 Now assume that on December 31, 2023, Sandhill enters into the following transactions related to the company's receivables: 1. Sandhill sells the note receivable to Pralrie Bank for $45,000 cash plus accrued interest. Given the creditworthiness of Sandhill's customer, the bank accepts the note without recourse and assesses a finance charge of 3.40%. Prairie Bank will collect the note directly from the customer. 2. Sandhill factors some accounts receivable at the end of the year. Accounts totalling $45,000 are transferred to Teal Mountain, Inc., with recourse. Teal Mountain retains 7% of the balances and assesses a finance charge of 3% on the transfer. Teal Mountain will collect the receivables from Sandhill's customers. The fair value of the recourse obligation is $4,800. Prepare the journal entry to record the transfer of the note receivable to Prairie Bank

User Bootsmaat
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Final answer:

The journal entry to record the transfer of the note receivable to Prairie Bank includes debiting Cash and accrued interest, and crediting Note Receivable, Interest Revenue, and Finance Charge Revenue.

Step-by-step explanation:

To record the transfer of the note receivable to Prairie Bank, the journal entry should be as follows:

  1. Debit: Cash - $45,000
  2. Debit: Accrued Interest - $1,530 ($45,000 x 11% x 6/12)
  3. Credit: Note Receivable - $45,000
  4. Credit: Interest Revenue - $1,530
  5. Credit: Finance Charge Revenue - $1,530 ([$45,000 x 3.40%] - [$45,000 x 3%])

User TheWildHealer
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