Chen Company assigned $400,000 of accounts receivable to Kwik Finance Co. as sec

Question

Chen Company assigned $400,000 of accounts receivable to Kwik Finance Co. as security for a loan of $335,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Chen Company collected $10,000 on assigned accounts after deducting $38o of discounts. Chen Company accepted returns worth $1,350 and wrote off assigned accounts totaling $2.980 How much was the amount of cash Chen Company received from Kwik at the time of the transfer and what would be included for the entries during the first month? A. $301,50o; debit to Cash of $110.380. B. $327,00o; debit to Bad Debt Expense of $2.980. 18. C $328,300: debit to Allowance for Doubtflcouts of 2,980 D. $335,000; debit to Accounts Receivable of $114,710

Explanation / Answer

Solution:

Amount of cash received by Chen Company from Kwik at the time of transfer = Amount of Loan - Commission

= $335,000 - ($335000*2%) = $335000 - $6700 = $328,300

A debit to Allowance for Doubtful Accounts of $2,980 will be included for the entries for the first month beacause the company wrote off assigned accounts totalling $2,980.

Henec Option "C" is correct.

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