Account Receivable Assignment Agreement

Document Sample
Account Receivable Assignment Agreement Powered By Docstoc
					                       Exercise 1
E.7.13, On April 1, 2004, Rasheed Company assigns $
   400,000 of its account receivable to the Third
   National Bank as collateral for a $ 200,000 loan due
   July 1, 2004. 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).
Instructions :
a. Prepare the April 1, 2004, journal entry for Rasheed
   Company.
b. Prepare the journal entry for Rasheed’s collection of
   $ 350,000 of the accounts receivable during the
   period from April 1, 2004, through June 30, 2004.
c. On July 1, 2004, Rasheed paid Third National all that
   was due from the loan it secured on April 1, 2004.
                    Answer of Exercise 1

(a) Cash               192,000
    Finance Charge       8,000*
         Notes Payable       200,000
    2 % x $ 400,000 = $ 8,000

(b) Cash                  350,000
       Accounts Receivable      350,000

(c) Notes Payable    200,000
    Interest Expense   5,000
        Cash                205,000
  10 % x $ 200,000 x 3/12 = $ 5,000
                      Exercise 2
E.7.17
JFK Corp factors $ 300,000, of accounts receivable with
   LBJ Finance Corporation on a without recourse basis
   on July 1, 2003. The receivables records are
   transferred to LBJ Finance, which will receive the
   collections. LBJ Finance assesses a finance charge of
   1,5 % of the amount of accounts receivable and
   retains an amount equal to 4 % of accounts receivable
   to cover sales discounts, returns and allowances. The
   transaction is to be recorded as a sale.
Instructions :
a. Prepare the journal entry on July 1, 2003, for JFK
   Corp to record the sale of receivables without
   recourse.
b. Prepare the journal entry on July 1, 2003, for LBJ
   Corp to record the purchase of receivables without
   recourse.
                Answer of Exercise 2

(a) July 1
    Cash                         $ 283,500
    Due from Factor              $ 12,000 */
    Loss on Sale of Receivables $    4,500 **/
          Accounts Receivable              $ 300,000
    * /($12,000 = 4% X $300,000)
   **/($4,500 = 1 1/2% X $300,000)


(b) July 1
  Accounts Receivable                $ 300,000
         Due to JFK Corp.                    $ 12,000
         Financing Revenue                   $   4,500
         Cash                                $ 283,500
                               Exercise 3

P.7-5, Presented below is information related to the Accounts Receivable
    accounts of Gulistan Inc during the current year 2004.
1. An aging schedule of the accounts receivable as of December 31, 2004,
    is as follows.
                                     % to be Applied after
   Age           Net debit balance    Correction is made
   Under 60 days     $ 172,342               1%
   61 - 90 days        136,490               3%
   91 – 120 days         39,924              6%
   Over 120 days     _   23,644      $ 4,200 definitely uncollectible, estimated
                     $ 372,400       remainder uncollectible is 25 %


2. The accounts receivable control account has a debit balance of $
    372,400 on December 31, 2004.
3. Two entries were made in the bad debt expense account during the year
    (a) a debit on December 31 for the amount credited to Allowance for
    Doubtful Accounts, and (b) a credit for $ 2,740 on November 3, 2004,
    and a debit to Allowance for Doubtful Accounts because a bankruptcy.
                                Exercise 3

4. The Allowance for Doubtful accounts is as follows for 2004.

  _                         Allowance for Doubtful Accounts              _
  Debit                                   Credit
  Nov 3, Uncollectible accounts           Jan 1, Beginning balance    8,750
         Written off              2,740 Dec 31, 5 % of $ 372,400     18,620


5. A credit balance exists in the accounts receivable (61-90 days) of
    $ 4,840, which represents an advance on a sales contract.

Instructions :
Assuming the books have not been closed for 2004, make the
    necessary correcting entries.
                            Answer of Exercise 3
Bad Debt Expense                         2,740.00
        Accounts Receivable                           2,740.00

Accounts Receivable                            4,840.00
        Advance on Sales Contract                      4,840.00

Allowance for Doubtful Accounts                         4,200.00
        Accounts Receivable                                     4,200.00

Allowance for Doubtful Accounts                    7,374.64
        Bad Debt Expense                                       7,374.64

Balance ($ 8,750 + $ 18,620 – $ 2,740 – $ 4,200)               $ 20,430.00
Corrected balance                                                13,055.36
Adjustment                                                     $ 7,374.64

Age               Balance                    Aging Schedule
Under 60 days   $ 172,342                           1%      $ 1,723.42
61-90 days        141,330 ($ 136,490 + $ 4,840)     3%          4,239.90
91-120 days        37,184 ($ 39,924 – $ 2,740)      6%          2,231.04
Over 120 days      19,444 ($ 23,644 – $ 4,200)     25%          4,861.00
                                                             $ 13,055.36
                             Answer of Exercise 3
If the write off entry not the $ 4,200, the following would change in the
    problem.
Balance ($ 8,750 + $ 18,620 – $ 2,740)           $ 24,630.00
Corrected balance                                  17,255.36
Adjustment                                       $ 7,374.64

Age                      Balance Aging Schedule
Under 60 days          $ 172,342       1%       $ 1,723.42
61-90 days                141,330      3%          4,239.90
91-120 days                37,184      6%          2,231.04
Over 120 days              23,644      —           9,061.00*
                                                $ 17,255.36
*[$ 4,200 + (25 % x $ 19,444) = 9,061]

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:569
posted:12/4/2010
language:English
pages:8
Description: Account Receivable Assignment Agreement document sample