Question

On October 1, 2017, Waterway, Inc. assigns $1,160,700 of its accounts receivable to Wildhorse National Bank as collateral for a $747,900 note. The bank assesses a finance charge of 3% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Waterway and Wildhorse.

Answer 1

Answer:

                                             Waterway, Inc.

        General Journal                            Debit            Credit

Cash                                                      $713,079

Interest Expense ($1,160,700 * 3%)     $34,821  

Notes Payable                                                          $747,900

                                     Wildhorse National Bank

        General Journal                            Debit            Credit

Notes Receivable                                  $747,900

Cash                                                                           $713,079

Interest Revenue ($1,160,700 * 3%)                          $34,821