Question

Accounts receivable in the amount of $910,000 were assigned to the Fast Finance Company by Sheffield, Inc., as security for a loan of $780,000. The finance company assessed a 4% finance charge on the face amount of the loan, and the note bears interest at 8% per year. During the first month, Sheffield collected $507,000 on assigned accounts. This amount was remitted to the finance company along with one month's interest on the note. Make all the entries for Sheffield Inc. associated with the transfer of the accounts receivable, the loan, and the remittance to the finance company. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)

Answer 1

Journal entries

Step-by-step explanation:

The journal entries are as follows

1. Cash $748,800

Interest expense $31,200 ($780,000 × 4%)

To Note payable $780,000

(Being the cash received is recorded)

2. Cash Dr $507,000

To Account receivables $507,000

(Being the collection is recorded)

3. Note payable $507,000

Interest expense $2,600 ($780,000 × 4% × 1 month ÷ 12 month)

To Cash $509,600

(Being the note payable and the interest expense is recorded)