1) Prepare journal enries for Super Co.
Accounts receivable in the amount of $700,000 were assigned to Big Finance by Super Co. as security for a loan of $580,000, Big finance charged a four precent commission on the accounts; the interest rate on the note is 11% per year.
During the first month, Super co. collected $300,000 on assigned accounts after deduction $1,500 of cash discounts. Super Co. wrote off a $1,000 assigned account.
Super Co. paid to Big Finance the amount collected plus one month’s interest on the note.
2)On January 1, 2011 Front Corporation recives a four year $100,000 zero interest bearing note in payment of goods sold. The present value of the note equals the agreed upon sales price of $65,873. Fron is a privately held company and follows private entity GAAP.
Assuming Front uses the straight line method to amortize the note;s discount, prepare the journl entry to record the sale on January 1, and the interest accrual on Dec. 31, 2011
Effective interest methof to amortize the note’s discount. prepare the same two entries as previously stated under this method.
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