Swifty, Inc. and Nash National Bank will record the transactions related to the assignment of receivables and notes payable with specific journal entries that reflect the transfer of assets, financing costs, and loan proceeds.
The student's question pertains to recording journal entries for the assignment of accounts receivable by Swifty, Inc. to Nash National Bank as collateral for a loan. On October 1, 2025, Swifty assigns $1,205,800 of its accounts receivable to Nash National Bank and receives a $722,900 note. The bank charges a finance charge of 3% on the assigned receivables and interest on the note at 9%. The journal entries for Swifty would include debiting Cash for the amount received, debiting Finance Charge Expense for the 3% finance charge, and crediting Notes Payable for the note amount. Additionally, Swifty would debit Accounts Receivable Assigned to indicate the utilization of receivables as collateral. For Nash National Bank, the journal entry would include debiting Loans Receivable for the note amount and crediting Cash or Reserve Account for the funds provided.
As an example to relate it to the banking operations mentioned, when Singleton Bank lends $9 million to Hank's Auto Supply, it records the loan on its balance sheet as an asset because it expects to receive interest income. Hank's deposit increases both the deposits and the reserves of First National Bank, which must hold 10% as required reserves but can loan out the rest.