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    Peachey's Avatar
    Peachey Posts: 99, Reputation: 1
    Junior Member
     
    #1

    Jul 12, 2009, 02:38 PM
    Accured Interest On The Note
    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? This is my working: Please tell me where I am going wrong. :confused:

    September 1
    Debit Bank (98%) 260,000-3,500 = $256,500
    Debit Finance charges (2%) 256,500*.02 = 5,130$
    Credit Pacific Bank (100%)256,500+5,130 = 261,630 $
    To record funds provided by bank
    Debit Accounts receivable assigned = $256,500
    Credit accounts receivable = $256,500

    September 30
    Debit Cash $5,130+6,250 (interest expense) = 11,380
    Debit Discount allowed = $3,500
    Credit accounts receivable assigned = $256,500
    Debit Interest expense (1%) = $6,250
    Debit Pacific Bank (99%) $261,630-6,250 = 255,380
    Credit Cash = $11,380
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
    Senior Member
     
    #2

    Jul 13, 2009, 10:36 AM
    Peachey;1851117]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?
    B]This is my working:[/B] Please tell me where i am going wrong. :confused:

    September 1
    Debit Bank (98%) 260,000-3,500 = $256,500
    Debit Finance charges (2%) 256,500*.02 = 5,130$
    Credit Pacific Bank (100%)256,500+5,130 = 261,630 $
    To record funds provided by bank
    Debit Accounts receivable assigned = $256,500
    Credit accounts receivable = $256,500
    You have missed the first entry on September 1 to record the assignment of receivables
    Debit Accounts receivable assigned $750,000
    Credit Accounts receivable $750,000

    Debit Bank $610,000
    Debit Finance charges $15,000 - ($750,000 x 2%)
    Credit Pacific Bank $625,000
    To record the funds received from Pacific Bank

    September 30
    Debit Cash $5,130+6,250 (interest expense) = 11,380
    Debit Discount allowed = $3,500
    Credit accounts receivable assigned = $256,500
    Debit Interest expense (1%) = $6,250
    Debit Pacific Bank (99%) $261,630-6,250 = 255,380
    Credit Cash = $11,380
    Compare with the following:
    Debit Cash 256,500
    Debit discounts allowed 3,500
    Credit Accounts receivable assigned 260,000

    Debit Interest expense 3,685
    Debit Pacific Bank 252,815
    Credit Cash 256,500
    Peachey's Avatar
    Peachey Posts: 99, Reputation: 1
    Junior Member
     
    #3

    Jul 13, 2009, 11:33 AM

    OK but I am stuck at Debit Interest expense (1%) I don't know what to calculate: and what is owed to the bank for sept collection plus accrued interest on the note to sept. 30.

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