Accounts receivable in the amount of $470,000 were assigned to the Fast Finance Company by Marsh, Inc., as security for a loan of $680,000. The finance company assessed a 10% finance charge on the face amount of the loan, and the note bears interest at 10% per year. During the first month, Marsh collected $490,000 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 Marsh Inc. associated with the transfer of the accounts receivable, the loan, and the remittance to the finance company.

Answer and Explanation:

                                                   Marsh Inc.

                                               Journal Entries

                                                                            Debit                  Credit

(a) Cash ($680,000 - $68,000)                       $612,000

    Interest expense ($680,000 x 10%)           $68,000          

             Notes payable                                                                $680,000

    To record cash received against loan.

(b) Cash                                                              $490,000

             Accounts receivable                                                       $490,000

     To record cash collected during first month.

(c) Notes payable                                               $490,000

    Interest expense ($680,000 x 10% x 1/12)   $5,667

             Cash ($490,000 + $5,667)                                             $495,667

   To record notes payable and first month interest expense.

cash                                    612,000 debit

interest expense                 68,000 debit

           note payable                680,000 credit

cash 490,000 debit

  accounts receivables 490,000 credit

note payable    490,000 debit

interest expense   5,667 debit

               cash            495,667 credit

Explanation:

The lender will take a 10% discount before hand:

680,000 - 68.000 = 612,000

Then, we collect the 490,000 from our account so we record that as usual

the interest on the loan will be of:

principal x rate x time

680,000 x 0.1 x 1/12 = 5666,67

We now record the total cash outlay and tdecrease the note payable

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.

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