A note payable was executed by Sterling Inc. to Miami Finance Company. Sterling Inc. used $768,000 of its accounts receivable as collateral for the loan. The contract provided that Miami would advance 85% of the gross amount of the receivables. Sterling Inc. continues to collect payments for the receivables and the cash from customers is then remitted to the finance company. The cash remitted is first applied to the finance charges, with the remainder applied to principal. During the first month, customers owing $524,800 paid cash, less sales returns and allowances of $20,480, originally recorded as a refund liability. The finance charge at the end of the first month was $4,480. During the second month, the remaining receivables were collected in full, except for $5,120 off as uncollectible. Final settlement was effected with the finance company, including payment of an additional finance charge of $1,920.

Required:
a. Record the entry for Sterling to record the secured borrowing.
b. Record the entries for Sterling to record (1) the collections and (2) the payment to Miami for the first month.
c. Record the entries for Sterling to record (1) the collections for the second month and (2) the final payment to Miami.

See all the entries below.

Explanation:

a. Record the entry for Sterling to record the secured borrowing.

The entries will look as follows:

Account Name                                    Debit ($)           Credit ($)    

Cash (768,000 * 85%)                       652,800

  Note Payable                                                              652,800

(To record the secured borrowing.)                                                    

b. Record the entries for Sterling to record (1) the collections and (2) the payment to Miami for the first month.

The entries will look as follows:

Account Name                                    Debit ($)           Credit ($)      

Cash                                                   504,320

Refund Liability                                    20,480

  Accounts Receivable                                                 524,800

(To record collection on receivables for first month.)                        

Interest Expense                                     4,480

Note Payable                                      499,840

  Cash                                                                             504,320

(To record payment to Miami for the first month.)                              

c. Record the entries for Sterling to record (1) the collections for the second month and (2) the final payment to Miami.

The entries will look as follows:

Account Name                                    Debit ($)            Credit ($)    

Cash                                                    238,080

Allowance for Doubtful Debt                  5,120

  Accounts Receivable (w.1)                                          243,200

(To record collection on receivables for second month Interest.)    

Expense                                                   1,920

Note Payable                                       151,040

  Cash (w.2)                                                                      152,960

(To record final payment to Miami.)                                                      

Workings:

w.1: Accounts Receivable = Amount of accounts receivable as collateral – Cash received from customer = $768,000 - $524,800 = $243,200

w.2: Cash = Loan - First payment for principal = $652,800 - $499,840 = $152,960

answer; the inspector may have found some violation that could cause death or some kind of serious injury;

by knowing conditionality

explanation: