Share
Explore BrainMass

Accounting for Accounts and Notes REceivable

Question one:
Love Inc factored $800,00 of accounts receivable with Jaz Finance on a without recourse basis on June 30. The terms of the contract stated that Jaz Finance was to make collections, handle sales discounts and absorb the credit losses. Other terms included Love Inc to pay a finance charge of 8% of the total accounts receivables factored. Jaz Finance will also retain an amount to cover sales discounts in the amount of 2% of the total receivables.

A) On June 30, Love Inc. would journalize what entry in their books?
B) On June 30, Jaz Finance would journalize what entry in their books?

Question 2:
Love Inc. factored $800,000 of accounts receivable with Jaz Finance on a with recourse basis on June 30. The fair value of the recourse provision is $40,000. Other terms included Love Inc to pay a finance charge of 8% of the total accounts receivable factored. Jaz Finance will also retain an amount to cover sales discounts in the amount of 2% of the total receivables.

A) prepare the entry that Love Inc would journalize on their books.

Question 3:
DJ Inc. Issued a promissory note to Bliss Inc in the amount of $400,000 on January 1, 2004 the due date is December 31, 2008. The note has a stated rate of 4%. Interest is due each year on December 31. The current yield rate of interest is 8%.

A) What is the present value of the note.
B) What entry would DJ Inc journalize for the issuance of the note?

Solution Summary

This solution illustrates how to account for accounts receivable sold with and without recourse and for notes issued at a discount.

$2.19