Answer:
1 a) Debit Bank $540000, Credit Note payable $540000
no accounting entry for the collateral of Accounts receivable.
b) Debit Bank $590000, Credit Accounts receivable $590000
Debit Factoring fee $11800 Credit Bank $11800
2 a) Debit bank $540000, Credit Note payable $540000
Debit Note Payable $540000, Credit Accounts receivables $540000
no interest of 12% because full amount is paid at once.
b) Debit Bank $590000, Credit Accounts receivable $590000
Debit Factoring fee $11800 Credit Bank $11800
Debit bank $98 000, Credit Accounts receivables $98000
Explanation:
When the company transfers 590000 accounts receivable it is as if it has collected them and especially when there is no recourse and when they are collected they belong to the bank as the bank would have collected the money straight from customers. When 80% is collected on the remaining balance from 688000- 590000= 98000 is collected and is money for the company.
The 80% collection is more than the $540000 loan so the loan is paid at once and no interest on the remaining loan balance as is zero.
