On April 1, 2022, Prince Company pledges $800,000 of its accounts receivable to the Third National Bank as collateral for a $550,000 loan due July 1, 2022. The assignment agreement calls for Prince Company to continue to collect the receivables. Third National Bank assesses a finance charge 2.5% of the accounts receivable, and interest on the loan is 10% per year (a realistic rate of interest for a note of this type). Instructions: a) Prepare the April 1, 2022, journal entry for Prince Company. b) Prepare the journal entry for Prince's collection of $550,000 of the accounts receivable during the period from April 1, 2022, through June 30, 2022. The collections qualified for $25,000 of sales discounts for paying within the discount period and there were $30,000 of sales returns. $20,000 of A/R was also written off. c) On July 1, 2022, Prince paid Third National all that was due from the loan it secured on April 1, 2022.
On April 1, 2022, Prince Company pledges $800,000 of its accounts receivable to the Third National Bank as collateral for a $550,000 loan due July 1, 2022. The assignment agreement calls for Prince Company to continue to collect the receivables. Third National Bank assesses a finance charge 2.5% of the accounts receivable, and interest on the loan is 10% per year (a realistic rate of interest for a note of this type). Instructions: a) Prepare the April 1, 2022, journal entry for Prince Company. b) Prepare the journal entry for Prince's collection of $550,000 of the accounts receivable during the period from April 1, 2022, through June 30, 2022. The collections qualified for $25,000 of sales discounts for paying within the discount period and there were $30,000 of sales returns. $20,000 of A/R was also written off. c) On July 1, 2022, Prince paid Third National all that was due from the loan it secured on April 1, 2022.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On April 1, 2022, Prince Company pledges $800,000 of its accounts receivable to the Third
National Bank as collateral for a $550,000 loan due July 1, 2022. The assignment agreement calls for
Prince Company to continue to collect the receivables. Third National Bank assesses a finance charge of
2.5% of the accounts receivable, and interest on the loan is 10% per year (a realistic rate of interest for
a note of this type).
Instructions:
a) Prepare the April 1, 2022, journal entry for Prince Company.
b) Prepare the journal entry for Prince's collection of $550,000 of the accounts receivable during
the period from April 1, 2022, through June 30, 2022. The collections qualified for $25,000 of
sales discounts for paying within the discount period and there were $30,000 of sales returns.
$20,000 of A/R was also written off.
c) On July 1, 2022, Prince paid Third National all that was due from the loan it secured on April 1,
2022.
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