Income Effects of Receivables Transactions Sandburg Company requires additional cash for its business. Sandburg has decided to
Question:
Income Effects of Receivables Transactions Sandburg Company requires additional cash for its business. Sandburg has decided to use its accounts receivable to raise the additional cash and has asked you to determine the income statement effects of the following contemplated transactions.
1. On July 1, 2010, Sandburg assigned $400,000 of accounts receivable to Keller Finance Company.
Sandburg received an advance from Keller of 80% of the assigned accounts receivable less a commission of 3% on the advance. Prior to December 31, 2010, Sandburg collected $220,000 on the assigned accounts receivable, and remitted $232,720 to Keller, $12,720 of which represented interest on the advance from Keller.
2. On December 1, 2010, Sandburg sold $300,000 of net accounts receivable to Wunsch Company for $270,000. The receivables were sold outright on a without-recourse basis.
3. On December 31, 2010, an advance of $120,000 was received from First Bank by pledging $160,000 of Sandburg’s accounts receivable. Sandburg’s first payment to First Bank is due on January 30, 2011. Prepare a schedule showing the income statement effects for the year ended December 31, 2010, as a result of the above facts.
Accounts ReceivableAccounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
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Intermediate Accounting
ISBN: 978-0470423684
13th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield