Reference no: EM133039786

Question - Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2021, the company had accounts receivable of $1,000,000. Lonergan needs approximately $610,000 to capitalize on a unique investment opportunity. On July 1, 2021, a local bank offers Lonergan the following two alternatives:

-Borrow $610,000, sign a note payable, and assign the entire receivable balance as collateral. At the end of each month, a remittance will be made to the bank that equals the amount of receivables collected plus 12% interest on the unpaid balance of the note at the beginning of the period.

-Transfer $660,000 of specific receivables to the bank without recourse. The bank will charge a 3% factoring fee on the amount of receivables transferred. The bank will collect the receivables directly from customers. The sale criteria are met.

Required - Complete this question by entering your answers in the tabs below.

1. Prepare the journal entries that would be recorded on July 1 for:

a. alternative a. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the borrowing $610,000, sign a note payable, and assign the entire receivable balance as collateral. b. alternative b. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the transfer $660,000 of specific receivables to the bank without recourse. The bank will charge a 3% factoring fee on the amount of receivables transferred.

2. Assuming that 90% of all June 30 receivables are collected during July, prepare the necessary journal entries to record the collection and the remittance to the bank for:

a. alternative a. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the collection of receivables, assuming that 90% of all June 30 receivables are collected on July 31.

-Record the month-end remittance to the bank as the amount of receivables collected plus 12% interest on the unpaid balance of the note at the beginning of the period. b. alternative b. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the collection of receivables, assuming that 90% of all June 30 receivables are collected on July 31. The bank will collect the transferred receivables directly.