Question
Problem 7-11 Coronado Company requires additional cash for its business. Coronado has decided to use its...
Problem 7-11
Coronado Company requires additional cash for its business. Coronado has decided to use its accounts receivable to raise the additional cash and has asked you to determine the income statement effects of the following contemplated transactions.
| 1. | On July 1, 2017, Coronado assigned $760,000 of accounts receivable to Keller Finance Company. Coronado received an advance from Keller of 80% of the assigned accounts receivable less a commission of 2% on the advance. Prior to December 31, 2017, Coronado collected $418,000 on the assigned accounts receivable, and remitted $442,168 to Keller, $24,168 of which represented interest on the advance from Keller. | |
| 2. | On December 1, 2017, Coronado sold $570,000 of net accounts receivable to Wunsch Company for $513,000. The receivables were sold outright on a without recourse basis. | |
| 3. | On December 31, 2017, an advance of $228,000 was received from First Bank by pledging $304,000 of Coronado’s accounts receivable. Coronado’s first payment to First Bank is due on January 30, 2018. |
Prepare a schedule showing the income statement effects for the year ended December 31, 2017, as a result of the above facts.
| CORONADO COMPANY Income Statement Effects
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December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017Answers
CORONADO COMPANY Income Statement Effects For the Year Ended December 31, 2017 Expenses resulting from accounts receivable $ 36,328 Loss resulting from accounts receivable sold $ 57,000 Total expenses $ 93,328 Calculation parts
Accounts receivable sold $ 760,000 Multiply: percentage of advance as assigned accounts receivable 80% Cash received in advance $ 608,000 Multiply: commission percentage on the advance 2% Commission charge on advance $ 12,160 Add: Interest on the advance from Keller $ 24,168 Expenses resulting from accounts receivable $ 36,328 Sales of net accounts receivable to Wunsch Company $ 570,000 Less: Cash received from accounts receivable sold $ 513,000 Loss resulting from accounts receivable sold $ 57,000
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