Problem 2: Accounts Receivable (15 points)

Part A. On July 1, 2014, Otter Sea Equipment Company sold a fishing boat to James Brothers Yatching, Inc. In lieu of a cash payment James Brothers Yachting gave Otter Sea a 3-year, $150,000, 12% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on July 1. Otter Sea's financial statements are prepared on a calendar-year basis. Instructions Assuming James Brothers Yatching fulfills all the terms of the note, prepare the necessary journal entries Otter Sea Farm Equipment Company for the entire term of the note.

Part B. On October 1, 2014, Power Company assigned, accounts receivable amounting to $220,000 to a bank. The bank advanced to Power 75% of the accounts assigned less a finance charge of 1% of the total accounts assigned, while withholding the remaining 25% until the bank makes full recovery. On October 31, 2014, Power Company received a statement that the finance company had collected $120,000 of these accounts and had made an additional charge of 1% of the total accounts outstanding as of October 31. This charge is to be deducted at the time of the first remittance due Power Company from the bank. On November 30, 2014, Power Company received a second statement from the bank, together with a cash payment for the amount due. The statement indicated that the bank had collected an additional $60,000 and had made a further charge of 1% of the balance outstanding as of November 30.

Instructions:

i)Make all entries on the books of Power Company that are involved in the transactions above (8 points).

ii)Make all entries on the books of the bank that are involved in the transactions above (7 points).