Question

On October 1, 2020, Sheridan, Inc. assigns $1,122,400 of its accounts receivable to Skysong National Bank as collateral for a $719,700 note. The bank assesses a finance charge of 3% of the receivables assigned and interest on the note of 10%. Prepare the October 1 journal entries for both Sheridan and Skysong.

Answer 1

Answer and Explanation:

The journal entries are shown below;

For Sheridan, Inc

Cash $686,028

Interest Expense (3% of $1,122,400) $33,672

To Notes Payable $719,700

(Being cash received is recorded)

For Skysong National bank

Notes Receivable $719,700

To Cash $719,700

To Interest Revenue (3% of $1,122,400) $33,672

(Being cash paid is recorded)

These two entries should be recorded