Blossom Company finances some of its current operations by assigning accounts re
ID: 2558437 • Letter: B
Question
Blossom 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 $270,000. The finance company advanced to Blossom 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, Blossom Company received a statement that the finance company had collected $144,000 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 deducted at the time of the first remittance due Blossom Company from the finance company. (Hint: Make entries at this time.) On August 31, 2017, Blossom 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 $90,000 and had made a further charge of 0.40% of the balance outstanding as of August 31.
Make all entries on the books of Blossom Company that are involved in the transactions above. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles 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)
(To record the interest)
August 31
Date
Account Titles and Explanation
Debit
Credit
July 1
July 1July 31August 31
(To record the collection of accounts)
July 1July 31August 31
(To record the interest)
August 31
Explanation / Answer
Journal Entry in the books of Blossom Company Date Account Title & Explanation Debit Credit 01-07.2017 Cash $214,920.00 Financing Charges ($270000*0.40%) $1,080.00 Note Payable ($270000*80%) $216,000.00 31/07/2017 Note Payable $144,000.00 Account Receivable $144,000.00 31/07/2017 Financing Charges ($270000-$144000)*0.40% $504.00 Finance Charges payable $504.00 31/08/2017 Note Payable ($216000-$144000) $72,000.00 Cash $17,352.00 Finance Charges payable $504.00 Financing Charges ($270000-$144000-$90000)*0.40% $144.00 Account Receivable $90,000.00