Softa Company borrows $ 850,000 from Deer Financing Associates by securing a revolving line of credit at a 6% interest rate on April 15. Interest is due and payable at the end of each month based on the outstanding balance at the beginning of the month. Softa assigns $ 900,000 of its accounts receivable as collateral for the lending arrangement. Assume accounts receivable are collected at the end of the month and the proceeds are remitted to Deer at the end of the month. Below is a listing of payments collected on accounts receivable.
MonthAccounts Receivable Collected
April …………………………….$ 100,000
May …………………………….. 487,000
June …………………………….. 113,000
Required
a. Compute the balance of notes payable at the end of each month.
b. Prepare the necessary journal entries for these transactions.
c. If the accounts receivable had been pledged as collateral, what entry would be made at April 15?