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On December 1 Jordan Inc. assigns $110000 of its accounts receivable to McLaughlin Company for cash.

On December 1, Jordan Inc. assigns $110,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a $850 service fee, advances 80% of Jordan’s accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance.

Required:

Prepare the related journal entries for Jordan.

Answer and Explanation

Cash87,150
Assignment Service Charge Expense850
Note Payable88,000
Accounts Receivable Assigned110,000
Accounts receivable110,000

Explanation

Cash = 110,000 x 80% – 850 = $87,150

Note Payable = 110,000 x 80% = $88,000

On December 1, Jordan Inc. has $110,000 in accounts receivable, which are outstanding payments owed to the company by its customers. Jordan Inc. decides to improve its cash flow by assigning these accounts receivable to McLaughlin Company in exchange for immediate cash. Here’s how this process works:

1. Accounts Receivable Assignment:

   Jordan Inc. assigns $110,000 of its accounts receivable to McLaughlin Company. This means that Jordan Inc. transfers the right to collect the $110,000 in outstanding payments from its customers to McLaughlin Company.

2. Cash Advance:

   McLaughlin Company advances $88,000 in cash to Jordan Inc. This is 80% of the total assigned accounts receivable, after subtracting the $850 service fee.

3. Assignment Fee:

   McLaughlin Company charges Jordan Inc. an assignment fee of $850 for facilitating the assignment. This is a cost associated with the transaction.

4. Interest on Advanced Amount:

   McLaughlin Company charges an annual interest rate of 9% on the $88,000 advanced amount. Interest will be payable on any outstanding loan balance.

So, in summary:

– Jordan Inc. assigns $110,000 of its accounts receivable to McLaughlin Company.

– McLaughlin Company advances $88,000 in cash to Jordan Inc (after subtracting the $850 fee).

– McLaughlin Company charges a $850 service fee.

– McLaughlin Company charges an annual interest rate of 9% on the $88,000 advanced amount.

Jordan Inc. now has access to $88,000 in cash and is obligated to repay this amount with the associated interest as part of the agreement with McLaughlin Company. This updated information reflects the corrected calculation of the assignment fee, which results in a total payment of $87,850 by Jordan Inc. to McLaughlin Company.

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