Reference no: EM132830119

Needham Corporation has a $200,000 balloon mortgage payment due in early August. To meet its obligation, it decided on August 1 to accelerate collection of accounts receivable by assigning $260,000 of specified accounts to a commercial lender as collateral for a loan. Under the agreement, Needham guarantees the accounts and will notify its customers to make their payments directly to the lender. In return, the lender advances to Needham 85% of the accounts assigned. The remaining 15% will be paid to Needham once the commercial lender has recovered its fees and related cash advances. The lender receives a fee of 5% of the total accounts assigned, which is immediately deducted from the initial cash advance. The lender also assesses a monthly finance charge of one-half of 1% on any uncollected balances. Finance charges are to be deducted from the first payment due Needham after the lender has recovered its cash advances. On August 31, Needham received a statement from the lender saying it had collected $160,000. On September 30, Needham received a check from the lender with a second statement saying it has collected an additional $80,000.

Problem 1: Prepare necessary journal entries made by Needham.

Aug 01) Record the entry for the loan by assigning accounts receivable as collateral.
Aug 31) Record the entry as a result of the collection of accounts receivable by the lender.
Aug 31) Record the entry to accrue interest at the end of the month.
Sept 30) Record the entry for the final settlement of the loan and assigned receivables.