12.A company assigns $3,000,000 of its accounts receivables as collateral for a

Question

12.A company assigns $3,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. The company. also pays a finance fee of 1% on the transaction at the time of the receipt of the loan proceeds. Prepare the journal entry (in T-account format) to recognize the assignment of accounts receivable, the receipt of the loan proceeds, and the payment of the finance fee.

12.A company factors $2,000,000 of its accounts receivables with recourse for a finance charge of 4%. The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments. Management of the company estimates the fair value of the recourse liability at $200,000. Prepare the journal entry(ies) (in T-account format) to recognize this scenario.

Explanation / Answer

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12)

These is no entry required for assignmnet of receivables as collateral. Only a disclosure is made on the balance sheet under Secured loans head that the loan has been secured against collateral of receivables.

Journal entry for receipt of Loan

Date Particulars Amount Dr Amount Cr xxxx Bank Dr 1000000 Bank Loan 1000000 (Being amount received from Bank as loan @ 8% against collateral of receivables valuing $ 3,000,000) xxxx Bank Charges 10000 Bank 10000 (Being Bank charges paid on bank loan @ 1%)

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