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Prepare the journal entries in good form

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On February 1, 20X1, Mercer Associates assigned $250,000 of its trade accounts receivable to Montoya State Bank as collateral (i.e., security) for a $200,000 loan maturing July 31, 20X1.

The terms of the loan include:

  1. Bank assessed a finance charge (i.e., a loan fee) equal to 4% of the face amount of the loan.
  2. The note specifies an annual interest rate of 9% (a fair market rate for this type of loan). 
  3. The assignment agreement provides that Mercer Associates will continue to collect customers' payments on the assigned accounts receivable.

Question 1: During February 20X1, Mercer collected $130,000 on assigned accounts and remitted this amount to Montoya State Bank on February 28, 20X1, along with interest for one month on the note.

Question 2: In the (MS Excel file), prepare the journal entries, in good form, required on Mercer's books to record the events identified

Reference no: EM132468805

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