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Company assign 56
Company assign 56.000.000 of its accounts receivables as collateral for a 54,000.000, 8x loan with a DELTA BANK *X Company also pays a finance charge of 3% of the account receivabilon be the entry to 5,830,000 50,000 Interestepenses Due trom Bank Notes payable 60.000 6.000.000 Cash Interestepenses Notes payable 3.820.000 180.000 4 000 000 5,820 000 Cash Imeres expenses 180.000 Account receivable 6000.000 3,880 000 120 000 Notes payat 4 000 000
Expert Solution
As X company has received a loan of $4000000 against the collateral security of Accounts receivable we need to credit Notes payable by $4000000, there is no need to credit Accounts receivable by $6000000 as that is only a security which is given. Now the finance charge is 3% of Accounts receivable hence interest expense would be debited by 6000000×3%= $180000 and the remaining is the cash received which would be 4000000-180000= $3820000. So the correct option is option b
Cash dr $3820000
Interest expense Dr $180000
Notes payable cr $4000000
Other options - option d is not correct as interest expenses is shown as 4000000×3%=120000 which is not correct. Option a and c are also not correct as per the explanation above.
If any doubt please comment.
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