Question
Lounow Distributors is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Lounows local
Lounow Distributors is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Lounows local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Lounows suppliers are demanding payment for goods acquired within 30 days of the invoice date, but Lounows customers are slow in paying for their purchases (6090 days). As a result, Lounow has a cash flow problem.
Lounow needs $160,000to cover next Fridays payroll. Its balance of outstanding accounts receivable totals $800,000. To alleviate this cash crunch, the company sells $170,000of its receivables.
Record the entry that Lounow would make. (Assume a2% service charge.)
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