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On April 1, 2014, Rasheed Company assigns $540,400 of its accounts receivable to

ID: 2379697 • Letter: O

Question

On April 1, 2014, Rasheed Company assigns $540,400 of its accounts receivable to the Third National Bank as collateral for a $346,000 loan due July 1, 2014. The assignment agreement calls for Rasheed Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type).


Prepare the April 1, 2014, journal entry for Rasheed Company.

april 1?2014            __________________________                         _____                      _____

                                    __________________________                         _____                      _____

                                    __________________________                         _____                      _____

Date                   Account Titles and Explanation                 Debit                Credit

Explanation / Answer

4/1       Cash                                 335192


            Interest Expense                10808                      (2% x 540,400 = 10808)


                        Notes Payable                  346,000

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