Problem 7-10 Windsor Company finances some of its current operations by assignin
ID: 2395940 • Letter: P
Question
Problem 7-10 Windsor Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2017, it assigned, under guarantee, specific accounts amounting to $495,000. The finance company advanced to Windsor 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of 0.40% of the total accounts assigned. On July 31, Windsor Company received a statement that the finance company had collected $264,000 of these accounts and had made an additional charge of 0.40% of the total accounts outstanding as of July 31, This charge is to be at the time of the first remittance due Windsor Company from the finance company. (Hint: Make entries at this time.) On August 31, 2017, Windsor Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $165,000 and had made a further charge of 0.40% of the balance outstanding as of August 31. Make all entries on the books of Windsor Company that are involved in the transactions above. (If no entry is required select "No Entry" for the account titles and enter O for the amounts. Credit account tities are automatically indented when the amount is entered. Do not indent manually,) Date Account Titles and Explanation Debit Credit July 1 (To record the collection of accounts) Policy 2000-2018 John Wiley & Sons, Inc. All Rights Re A Division of John Wilsy& Sons, Inc. 2Explanation / Answer
July 1, 2017
Cash......................................................................................
394,020
Interest Expense (.004 X $495,000).................................
1,980
Notes Payable (80% X $495,000)............................
396,000
July 31, 2017
Notes Payable.....................................................................
264,000
Accounts Receivable...............................................
264,000
Interest Expense.................................................................
924
Interest Payable (.004 X $231,000).........................
924
August 31, 2017
Notes Payable.....................................................................
132,000
Cash*.....................................................................................
31,812
Interest Expense (.004 X [$495,000 –
$264,000 – $165,000])......................................................
264
Interest Payable..................................................................
924
Accounts Receivable...............................................
165,000
*Total cash collection........................................................
$165,000
Less: Interest payable (from previous entry)...............
(924)
Interest expense (current month) [(.004 X
$495,000 – $264,000 – $165,000)]......................
(264)
Notes payable (balance) ($396,000 – $264,000)
(132,000)
Cash collected.....................................................................
$ 31,812
July 1, 2017
Cash......................................................................................
394,020
Interest Expense (.004 X $495,000).................................
1,980
Notes Payable (80% X $495,000)............................
396,000
July 31, 2017
Notes Payable.....................................................................
264,000
Accounts Receivable...............................................
264,000
Interest Expense.................................................................
924
Interest Payable (.004 X $231,000).........................
924
August 31, 2017
Notes Payable.....................................................................
132,000
Cash*.....................................................................................
31,812
Interest Expense (.004 X [$495,000 –
$264,000 – $165,000])......................................................
264
Interest Payable..................................................................
924
Accounts Receivable...............................................
165,000
*Total cash collection........................................................
$165,000
Less: Interest payable (from previous entry)...............
(924)
Interest expense (current month) [(.004 X
$495,000 – $264,000 – $165,000)]......................
(264)
Notes payable (balance) ($396,000 – $264,000)
(132,000)
Cash collected.....................................................................
$ 31,812