Cypres Appliance Store has $100,000 of accounts receivable on January 2, 2013. These receivables are due on
Question:
a. Prepare journal entries during 2013 for the transactions in parts (i) and (ii) below:
(i) The firm borrows $92,593 from its bank, using the accounts receivable as collateral.
The loan is repayable on December 31, 2013, with interest at 8%.
(ii) The firm sells the accounts receivable to the bank for $92,593. It collects amounts due from customers on these accounts and remits the cash to the bank.
b. Compare and contrast the income statement and balance sheet effects of these two transactions.
c. How should Cypres Appliance Store structure this transaction to ensure that it qualifies as a sale instead of a collateralized loan?
Accounts Receivable
Accounts 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... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Related Book For
Financial Accounting An Introduction to Concepts, Methods and Uses
ISBN: 978-1133591023
14th edition
Authors: Roman L. Weil, Katherine Schipper, Jennifer Francis
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