Question

On June 30, 2021, the High Five Surfboard Company had outstanding accounts receivable of $720,000. On July 1, 2021, the company borrowed $570,000 from the Equitable Finance Corporation and signed a promissory note. Interest at 10% is payable monthly. The company assigned specific receivables totaling $720,000 as collateral for the loan. Equitable Finance charges a finance fee equal to 1.2% of the accounts receivable assigned.

Required: Prepare the journal entry to record the borrowing on the books of High Five Surfboard. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Dr Cash$561,360

Dr Finance charge expense $8,640

Cr Finance arrangement $570,000

Step-by-step explanation:

Preparation of the journal entry to record the borrowing on the books of High Five Surfboard.

Dr Cash$561,360

[$570,000-($720,000*1.2%)]

$570,000-$8,640

=$561,360

Dr Finance charge expense $8,640

($720,000*1.2%)

Cr Finance arrangement $570,000

(Being to record the borrowing on the books of High Five Surfboard )