Question

At the beginning of the month, OPQ Industries assigned $100,000 of accounts receivable to Receivables-R-Us (RRU) for a loan of $90,000. The interest rate on the note is 10%. RRU charged a $2,500 finance fee and requires monthly remittances on the note. During the month, OPQ collects 58,000 of the assigned receivables in cash.

What is the note payable balance after OPQ records the appropriate payment journal entry at the end of the month?

		32,750
		40,313
		30,229
		42,833
		None of the other answer choices is correct.
		38,250
		41,000

Answer 1

Answer: 3,2750

Calculations:

Month	Cash payment	Interest expense	Decrease in carrying value	Carrying value of the note
0				$90,000
1	$58,000	$750	$57,250	$32,750

Interest expense = Preceding carrying value x 10% x 1/12 = $90000 x 10% x 1/12 = $750

Decrease in carrying value = Cash payment - Interest expense = $58,000-$750=$57,250

Carrying value = Preceding carrying value - Decrease in carrying value = $90,00-$57,250 = $32,750.

Therefore,

Note payable balance after OPQ records the appropriate payment journal entry at the end of the month is $32,750