There are several journal entries that need to be made for Nance Inc. I will list each journal entry along with a brief explanation:
1. To record transfer of accounts receivable to Fast Finance Company:
Accounts Receivable Assigned to Fast Finance 250,000
Accounts Receivable 250,000
(To record the transfer of accounts receivable to Fast Finance Company as security for the loan)
2. To record the loan received from Fast Finance Company:
Cash 190,000
Finance Charge 10,000
Loan Payable 200,000
(To record the loan received from Fast Finance Company, after deducting the 4% commission)
3. To record the collection of assigned accounts receivable:
Cash 130,000
Accounts Receivable Assigned 130,000
(To record the collection of $130,000 of assigned accounts receivable)
4. To record the remittance to Fast Finance for collections and one month's interest on the loan:
Loan Payable 130,000
Interest Expense 1,500
Cash 131,500
(To record the remittance of $130,000 for collected receivables and $1,500 interest payment, calculated as: $200,000 * 9% / 12 = $1,500)
After these transactions, the remaining balances for each account would be:
- Accounts Receivable Assigned to Fast Finance: $120,000
- Cash: $198,500 ($250,000 original balance + $190,000 loan - $130,000 collected + $130,000 remittance - $1,500 interest expense)
- Loan Payable: $70,000 ($200,000 original loan - $130,000 remitted)
Accounts receivable in the amount of 250,000 were assigned to the fast Finance Company by Nance INC as security for a loan of 200,000. The finance company charged a 4% commision on the face amount of the loan, and the note bears interest at 9% per year. During the first month Nance collected 130,000 on assigned accounts. This amount was remitted to the finance company along with one month's interest on the note.
Make all the entries for Nance Inc associated with the transfer of the accounts receivable, the loan, and the remittance to the finance company.
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