Problems 8-10 Balance sheet effects of collateralized borrowing versus factoring (LO 8-6)

Needham Corporation has a $200,000 balloon mortgage payment due in early August. To meet its obligation, it decided on August 1 to accelerate collection of accounts receivable by assigning $260,000 of specified accounts to a commercial lender as collateral for a loan. Under the agreement, Needham guarantees the accounts and will notify its customers to make their payments directly to the lender. In return, the lender advances to Needham 85% of the accounts assigned. The remaining 15% will be paid to Needham once the commercial lender has recovered its fees and related cash advances. The lender receives a fee of 5% of the total accounts assigned, which is immediately deducted from the initial cash advance. The lender also assesses a monthly finance charge of one-half of 1% on any uncollected balances. Finance charges are to be deducted from the first payment due Needham after the lender has recovered its cash advances. On August 31, Needham received a statement from the lender saying it had collected $160,000. On September 30, Needham received a check from the lender with a second statement saying it has collected an additional $80,000.

Required:

1-Prepare all necessary journal entries made by Needham.

2-Show the balance sheet presentation of the assigned accounts receivable and any related liabilities at August 31.

3-Prepare all necessary journal entries made by Needham assuming these changes in the given scenario:

a-The transaction qualifies under U.S. GAAP as a sale with recourse.

b-The assessed monthly finance charge increases the Loss on sale of receivables account and is offset by a credit to Due from factor.

c-Although Needham has guaranteed the transferred accounts, their high quality makes nonpayment unlikely.

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

Required 1

Prepare all necessary journal entries made by Needham. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

1-Record the entry for the loan by assigning accounts receivable as collateral. (August 01)

2-Record the entry as a result of the collection of accounts receivable by the lender. (August 31)

3-Record the entry to accrue interest at the end of the month. (August 31)

4-Record the entry for the final settlement of the loan and assigned receivables. (September 30)

Required 2

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

Show the balance sheet presentation of the assigned accounts receivable and any related liabilities at August 31.

Accounts receivable
Loan payable
Interest payable

Required 3

Journal entry worksheet

1-Record the entry cash received on accounts receivable after set-off of due on factor and loss on sales of receivable. (August 01)

2-Record the entry loss on sale of receivables and due from factor. (August 31)

3-Record the entry cash received on due from factor net off of loss on sales receivables. (September 30)