Reference no: EM131051211
The trial balance before adjustment for Slamar Company shows the following balances.
Consider the following independent situations:
1. To obtain additional cash, Slamar factors without recourse $50,000 of accounts receivable with Pierce Finance. The finance charge is 11% of the amount factored.
2. To obtain a 1-year loan of $75,000, Slamar assigns $80,000 of specific receivable accounts to Milo Financial. The finance charge is 9% of the loan; the cash is received and the accounts turned over to Milo Financial.
3. The company wants to maintain Allowance for Doubtful Accounts at 6% of gross accounts receivable. 4. The company wishes to increase the allowance account by 2% of net sales.
Instructions
(a) Using the data above, give the journal entries required to record situations 1-4.
(b) Discuss how analysis based on the current ratio and the accounts receivable turnover would be affected if Slamar had transferred the receivables in situation 1 using a secured borrowing.
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