Question

On December 1, 2016, General Mole borrowed $320,000 at 12% interest and pledged $420,000 in accounts receivable as collateral. Additionally, General Mole was charged a finance fee equal to 1% of the accounts receivable assigned. At the end of December, $220,000 of the assigned receivables were collected and remitted to the lender along with accrued interest.

Required:

Prepare journal entries to record the borrowing, the assignment of receivables, the collection on the receivables, and the recognition of interest expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

S.No	Date	Particulars	Debit	Credit
1	1 Dec 2016	Cash	320,000
		12% Borrowing		320,000
		(Being 12% borrowing taken)
2	1 Dec 2016	Finance Fees	3,200
		Cash		3,200
		(Being 1% of 320,000 paid as finance fees)
3	31 Dec 2016	Cash	220,000
		Receivables		220,000
		(Being cash collected against receivables)
4	31 Dec 2016	Interest on borrowing	38,400
		Interest accrued on 12% borrowing		38,400
		(Being interest accrued on 12% of 320,000)

Note: There will be no entry in the books of accounts on assignement of receivables, instead a disclosure will be given in the financial statements for such assignment