QUESTION 1

Lone Star Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June, 2017, the company had accounts receivable of $780,000 and an Allowance for Doubtful Accounts of $31,000 (cr). During the period from July 1 - Sept. 30, Lone Star had sales on account of $1,000,000, collected $800,000 on unassigned accounts and wrote off $5,000 of unassigned accounts receivable. Lone Star also collected $450 from a customer whose account had previously been written off (not included in the $800,000 above). (HINT: Use your green handout to help you reconcile the A/R and ADA t-accounts using this information.)

On August 1, Lone Star assigned $250,000 of the accounts receivable to XYZ Finance and received 80% of the value of the accounts assigned less a finance fee of $5,000. XYZ charges 1% per month (12% APR) on the outstanding loan balance. Cash collections from assigned accounts are to be remitted monthly to XYZ and cover principal andaccrued interest for the month. During August, Lone Star collected $130,000 in cash of the accounts receivable assigned and, in addition, accepted sales returns of $3,000 on assigned accounts. During September, Lone Star collected $70,000 in cash and, in addition, wrote off $2,000 of assigned accounts as uncollectible.

On September 30, Lone Star estimated 4% of the total accounts receivable and accounts receivable assigned to be uncollectible.

Required: Use the above information to determine each of the following:

a. Determine how much Interest Expense Lone Start would report on their quarterly income statement for the period July 1 thru Sept 30 from the accounts receivable assigned. (Remember, the fee charged initially to receive the loan is considered part of the "cost to borrow")	(a)
b. What is Bad Debt Expense for the July 1 - Sept 30 quarterly period?	(b)

c. Prepare the receivables section of the Balance Sheet dated September 30, 2017.

Accounts Receivable - General		$ ???
Accounts Receivable - Assigned	$ ???
Note Payable, 12%	$ ???
Equity in Accounts Receivable Assigned		$ 42,280
Less: Allowance for Doubtful Accounts		$ ???
NET REALIZABLE VALUE		$ ???

(a) Determine how much Interest Expense Lone Start would report on their quarterly income statement for the period July 1 thru Sept 30 from the accounts receivable assigned. (Remember, the fee charged initially to receive the loan is considered part of the "cost to borrow")

(b) What is Bad Debt Expense for the July 1 - Sept 30 quarterly period?

(c) Determine the Ending Balance of Accounts Receivable - General as of September 30, 2017

(d) Determine the ending balance of Accounts Receivable - Assigned as of September 30, 2017

(e) Determine the ending balance of the Note Payable as of September 30, 2017

(f) Determine the ending balance of Allowance for Doubtful Accounts (after adjustment) as of September 30, 2017

(g) Determine the Net Realizable Value of the Receivables as of September 30, 2017