Lincrat Corp. reports a current ratio of 3- to- 1 in its 20X2 financial statements. The statement of financial position shows current assets of $ 3,116,500 and current liabilities of $ 1,040,100. Lincrat has accounts receivable of $ 1,267,300. The company transfers $ 970,000 of these accounts receivable to a financial institution. There are $ 33,600 of bad debts associated with these accounts receivable, an amount that is already in the allowance for doubtful accounts. Proceeds of $ 889,450 are received from the transfer. The transfer is on a non- notification basis, which means that the customers pay Lincrat and Lincrat then remits the cash to the financial institution. The customers pay $ 936,400 to Lincrat on schedule, $ 33,600 is written of to the allowance at the appropriate time, and the cash remittance is forwarded to the financial institution.
1. Record all journal entries for the sequence of events assuming: a. he transfer is recorded as a sale/derecognition, and b. he transfer is recorded as a borrowing.
2. Calculate the current ratio, after the initial entry in requirements 1a and 1b, and comment on the result.