16 Mar During its second year of operations, Shank Corpor
During its second year of operations, Shank Corporation found itself in financial difficulties. Shank decided to use its accounts receivable as a means of obtaining cash to continue operations. On July 1, 2011, Shank sold $75,000 of accounts receivable for cash proceeds of $69,500. No bad debt allowance was associated with these accounts. On December 17, 2011, Shank assigned the remainder of its accounts receivable, $250,000 as of that date, as collateral on a $125,000, 12% annual interest rate loan from Sandy Finance Company. Shank received $125,000 less a 2% finance charge. Additional information is as follows:Allowance for Bad Debts, 12/31/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,200 (credit)Estimated Uncollectibles, 12/31/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% of Accounts ReceivableAccounts Receivable (not including factored and assigned accounts), 12/31/11 . $50,000None of the assigned accounts has been collected by the end of the year.Instructions:1. Prepare the journal entries to record the receipt of cash from the (a) sale and(b) Assignment of the accounts receivable.2. Prepare the journal entry necessary to record the adjustment to Allowance for Bad Debts.3. Prepare the Accounts Receivable section of Shankâ??s balance sheet as it would appear after the above transactions.4. What entry would be made on Shankâ??s books when the sold accounts have been collected?
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