The ABC sells fertilizer and pesticides to wholesalers. The company’s fiscal yea
ID: 2520505 • Letter: T
Question
The ABC sells fertilizer and pesticides to wholesalers. The company’s fiscal year-end is December 31. During 2018, the following transactions related to receivables occurred:
March 31 Sold merchandise to the Sala Co. and accepted a $12,000 noninterest-bearing note with a discount rate of 10%. This $12,000 payment is due on March 31, 2019.
May 30 Transferred receivables of $100,000 to a factor without recourse. The factor charged The ABC Company a 2.5% finance charge on the receivables transferred. The sale criteria are met.
July 31 Sold merchandise to Gunther Corporation for $15,000 and accepted an 8%, 6-month note. 8% is an appropriate rate for this type of note.
Sept 30 Discounted the Gunther Corporation note at the bank. The bank’s discount rate is 12%. The note was discounted without recourse.
Dec. 1 Borrowed $400,000 from Janice’s Receivables at 9% interest and assigned $500,000 in accounts receivable as collateral. The ABC Company signed a promissory note. The interest is payable monthly. Additionally, The ABC Company was charged a finance fee equal to 1.5% of the accounts receivable assigned.
Prepare the necessary journal entries for The ABC Company for each of the above dates. For transactions involving the sale of merchandise, ignore the entry for the cost of goods sold (Round all calculations to the nearest dollar).
Explanation / Answer
Date Account tilte and Explanation Debit ($) Credit ($) 31-Mar-18 notes receivables 12,000 Discount on notes receivables (12,000 * 10% * 12/12) 1200 Sales revenue (12,000 -1,200) 10,800 To record the receipt of notes receivables on discount) 30-May-18 Cash 49,500 Loss on sales receivables (50000*1%) 500 Accounts receivables 50,000 To record sales of receivables at loss 31-Jul-18 Notes receivables 15,000 Sales revenue 15,000 To record the notes received for sale 30-Sep interest receivable (15,000 * 8% * 2/12) 200 Interest revenue 200 To record the interest revenue 30-Sep Cash 15,100 Loss on sale of notes receivable 100 Interest receivable 200 Notes receivable 15,000 To record the discouting of notes receivable 1-Dec Cash 394,000 Finance charge (400,000 * 1.5%) 6000 Notes payable 400,000 Accounts receivable assigned 500,000 Accounts receivable 500,000 Cash 500,000 Accounts receivable 500,000 Notes payable 400,000 Interest expense 6,000 cash 406,000
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