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es. Ivanhoe's local banker has indicated that the company cannot increase its borrowing for the foreseeable ppliers are demanding payment for goods acquired within 30 days of the invoice date, but Ivanhoe's custome ir purchases (60-90 days). As a result, Ivanhoe has a cash flow problem. nhoe needs $144,200 to cover next Friday's payroll. Its balance of outstanding accounts receivable totals $8 s cash crunch, the company sells $161,000 of its receivables. cord the entry that Ivanhoe would make. (Assume a 2% service charge.) (Credit account titles are automatically entered. Do not indent manually.)

es. Ivanhoe's local banker has indicated that the company cannot increase its borrowing for the foreseeable ppliers are demanding payment for goods acquired within 30 days of the invoice date, but Ivanhoe's custome ir purchases (60-90 days). As a result, Ivanhoe has a cash flow problem. nhoe needs $144,200 to cover next Friday's payroll. Its balance of outstanding accounts receivable totals $8 s cash crunch, the company sells $161,000 of its receivables. cord the entry that Ivanhoe would make. (Assume a 2% service charge.) (Credit account titles are automatically entered. Do not indent manually.)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ivanhoe Distributors is a growing company facing challenges in raising capital as quickly as its assets and sales expand. The local banker has suggested that the company cannot increase its borrowing capacity soon. While Ivanhoe's suppliers require payment for goods within 30 days of the invoice date, its customers are slow in paying for their purchases (60–90 days). This situation has led to a cash flow problem. To address the immediate need for $144,200 to cover the next Friday's payroll, and with outstanding accounts receivable totaling $838,100, Ivanhoe plans to sell $161,000 of its receivables. The following is the journal entry Ivanhoe would make, assuming a 2% service charge: **Journal Entry:** - **Debit:** - Cash: $157,780 - Service Charge Expense (implied from the context, but not explicitly shown): $3,220 - **Credit:** - Accounts Receivable: $161,000 (Note: The service charge of 2% on $161,000 is $3,220. This amount is deducted from the cash received, resulting in a cash inflow of $157,780.) This transaction records the sale of receivables to a factor, alleviating the cash crunch for Ivanhoe Distributors.
Transcribed Image Text:Ivanhoe Distributors is a growing company facing challenges in raising capital as quickly as its assets and sales expand. The local banker has suggested that the company cannot increase its borrowing capacity soon. While Ivanhoe's suppliers require payment for goods within 30 days of the invoice date, its customers are slow in paying for their purchases (60–90 days). This situation has led to a cash flow problem. To address the immediate need for $144,200 to cover the next Friday's payroll, and with outstanding accounts receivable totaling $838,100, Ivanhoe plans to sell $161,000 of its receivables. The following is the journal entry Ivanhoe would make, assuming a 2% service charge: **Journal Entry:** - **Debit:** - Cash: $157,780 - Service Charge Expense (implied from the context, but not explicitly shown): $3,220 - **Credit:** - Accounts Receivable: $161,000 (Note: The service charge of 2% on $161,000 is $3,220. This amount is deducted from the cash received, resulting in a cash inflow of $157,780.) This transaction records the sale of receivables to a factor, alleviating the cash crunch for Ivanhoe Distributors.
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