White Corporation has entered into an agreement to transfer accounts receivable to Murphy Company. Under the terms of this agreement, White receives 80% of the value of all the transferred accounts receivable (to reflect credit risk) and is charged a 1% service charge, which is based upon the dollar amount of transferred receivables. Interest is charged at an annual interest rate of 12% of any outstanding loan balance. The transferred receivables will continue to be collected by White with any cash flows being remitted to Murphy at the end of each month. White is not allowed to transfer the receivables to anyone else. White normally transfers its accounts receivable. The following selected 2019 transactions relate to this agreement: Dec 1 Accounts receivable of $160,000 are transferred. 11 A sales return of $1,000 on a transferred account is made. 31 Collections are made on $82,000 of the transferred accounts receivable plus interest for the month of December. This amount is remitted to Murphy. Required: 1. Assume that White uses U.S. GAAP. A. Prepare journal entries on White’s books to record the preceding transactions. B. How would this agreement be reported on White’s December 31, 2019, balance sheet (assume the note payable is short-term)? 2. Assume that White uses IFRS: A. Prepare journal entries on White’s books to record the preceding transactions. B. How would this agreement be reported on White’s December 31, 2019, balance sheet (assume the note payable is short-term)?

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter17: Accounting For Notes And Interest

Section: Chapter Questions

Problem 4SEA: JOURNAL ENTRIES (NOTE RECEIVED, RENEWED, AND COLLECTED) Prepare general journal entries for the...

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White Corporation has entered into an agreement to transfer accounts receivable to Murphy Company. Under the terms of this agreement, White receives 80% of the value of all the transferred accounts receivable (to reflect credit risk) and is charged a 1% service charge, which is based upon the dollar amount of transferred receivables. Interest is charged at an annual interest rate of 12% of any outstanding loan balance. The transferred receivables will continue to be collected by White with any cash flows being remitted to Murphy at the end of each month. White is not allowed to transfer the receivables to anyone else. White normally transfers its accounts receivable. The following selected 2019 transactions relate to this agreement:

Dec 1	Accounts receivable of $160,000 are transferred.
11	A sales return of $1,000 on a transferred account is made.
31	Collections are made on $82,000 of the transferred accounts receivable plus interest for the month of December. This amount is remitted to Murphy.

Required:

Assume that White uses U.S. GAAP.

A.	Prepare journal entries on White’s books to record the preceding transactions.
B.	How would this agreement be reported on White’s December 31, 2019, balance sheet (assume the note payable is short-term)?

Assume that White uses IFRS:

A.	Prepare journal entries on White’s books to record the preceding transactions.
B.	How would this agreement be reported on White’s December 31, 2019, balance sheet (assume the note payable is short-term)?

General Journal Instructions
Assuming White uses U.S. GAAP, prepare journal entries on White's books to record the transactions.
Question not attempted.
PAGE 9
GENERAL JOURNAL
Score: 0/150
DATE
ACCOUNT TITLE
POST. REF.
DEBIT
CREDIT
1
2
3
4
6
9
10
11
12

Assuming White uses IFRS, prepare journal entries on White's books to record the transactions.
Question not attempted.
PAGE 9
GENERAL JOURNAL
Score: 0/125
DATE
ACCOUNT TITLE
POST. REF.
DEBIT
CREDIT
1
2
6
7
10

Expert Solution

Step 1

Explanation:

equirement 1a: Prepare the following journal entry to record the payment under GAAP

Date	Account Title and Explanation	Debit	Credit
Dec 1	Cash $128,000 - $1,600	$126,400
	Assignment service cost($160,000 x 1%)	$1,600
	Notes Payable($160,000 x 80%)		128,000
	To record accounts receiveable assigned
Dec 1	Accounts receiveable assigned	$160,000
	Accounts Receiveable		$160,000
	To record accounts receiveable assigned
Dec 11	Return Liability	$1,000
	Accounts receiveable assigned		1,000
	To record sales return
Dec 31	Cash	82,000
	Accounts receiveable assigned		82,000
	To rcecord sales on receiot of accounts receiveable assigned

Dec 31	Notes Payable	$82,000
	Interest Expense ($128,000 × 12%) ÷ 12	$1,280
	Cash		$83,282
	To record payment of accounts receivables with interest

1b.

WHITE CORPORATION
PARTIAL BALANCE SHEET
DECEMBER 31, 2019
Current assets
Accounts Receivable($160,000 - $1,000 - $82,000)	$77,000
Current Liabilities
Notes Payable($128,000 - $82,000)	$46,000

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