Hi! I know school is closed but I got this question from my friend but I don't understand how to get the debit interest expense and the debit pacific bank and she is not here to explain it to me, can anyone help and tell me if we were on the right track. :confused:

On September 1, Riva Co. assigns specific receivables totaling $750,000 to Pacific Bank as collateral on a $625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts receivable. Pacific also assesses a 2 percent service charge on the total accounts receivable assigned. Riva Co. is to make monthly payments to Pacific with cash collected on assigned accounts receivable. Collections of assigned accounts during September totaled $260,000 less cash discounts of $3,500. What amount is owed to Pacific by Riva Co. for September collections plus accrued interest on the note to September 30?

September 1
Debit Bank (98%) 625,000 – 15,000 = $610,000
Debit Finance charges (2%) 750,000 * .02 = $15,000
Credit Pacific Bank (100%) = $625,000
To record funds provided by bank
Debit Accounts receivable assigned$ = $750,000
Credit accounts receivable$ = $750,000

September 30
Debit Cash 260,000 – 3,500 = $256,500
Debit Discount allowed= $3,500
Credit accounts receivable assigned = $260,000
Debit Interest expense (1%) = $
Debit Pacific Bank (99%) = $
Credit Cash= $256,000

It would be better if you were to post your own solution for advice. I remember a similar question has already been answered. Better still read a good book, such as Kieso, Chasteen, etc.

I can't even afford my books, I use my friend books, but she is not here our school sent her to an on the job training for summer.

Debit Interest Expense 750,000 x .01 = 7,500
Debit Pacific Bank = 750,000 x .99 = 742,500

Let's start back up at the beginning. You borrowed $625,000. You didn't borrow $750,000. That is your receivables used as collateral. Think of it like having a $100,000 house and that's your collateral for a $75,000 loan you take out. You're borrowing $75,000, not $100,000. The collateral is just the "backup" that the bank can get in case you renege on the loan, but it's not the loan itself.

The starting entries are fine. Just as a note, I would call the $625,000 credit more like Note Payable or Note Payable-Pacific Bank, simply because you have nothing that indicates that it's a payable account. (How does someone know that's not another bank account you have at Pacific Bank, i.e. an asset? Those little unimportant words are important.)

Everything is fine up until the interest part. You're trying to figure interest on your receivables instead of on the loan. The loan is $625,000. You've borrowed $625,000 for one month at this point in time. (Next month that will go down due to the payment.)

And that 99/1% split doesn't work. When you used it on the finance charge it worked because you were taking a total of something and splitting it into two parts: 2% fee and the 98% that was left over that you got. But that isn't what the interest is doing. You're being charged 1% on the note, but you're not going to be subtracting that interest off the note to see what the 99% "left over" is. Interest paid is in addition to principal. (The only way you can subtract it is if you're discounting it. You're not - it's an interest-bearing note. Yes, you can discount notes but it has to say so.)

Furthermore, you aren't even paying the entire principal, so you can't even add it and say it's 101%. You have interest that is 1% of the $625,000 you borrowed, that you are paying in addition to a payment on the principal. And the amount paid on the principal is what you actually collected in cash off the receivables, which is how much?

The interest paid is figured on the amount borrwed for the past month. The amount you're going to pay is how much you collected on the receivables. They aren't related. Then you pay the two of them together. There isn't any 99%.

Try that.