On April 1, 2014, Ibrahim Corporation assigns $400,000 of its accounts receivable to First National Bank as collateral for a $200,000 loan that is due July 1, 2014. The assignment agreement calls for Ibrahim to continue to collect the receivables. First National Bank assesses a finance charge of 3% of the accounts receivable, and interest on the loan is 10%, a realistic rate for a note of this type.
Instructions
(a) Prepare the April 1, 2014 journal entry for Ibrahim Corporation.
(b) Prepare the journal entry for Ibrahim's collection of $350,000 of the accounts receivable during the period April 1 to June 30, 2014.
(c) On July 1, 2014, Ibrahim paid First National Bank the entire amount that was due on the loan.