On July 31, Orwell Co. has $448,800 of accounts receivable. Required:1. Prepare journal entries to record the following selected August transactions. The company uses the perpetual inventory system. 2. Explain what should be included in the footnotes to the August 31 financial statements as a result of these transactions. 3. Calculate the balance in the Accounts Receivable account as of August 10. Aug 3Sold $250,000 of merchandise (that cost $122,000) to customers on credit.Aug 5Sold $300,000 of accounts receivable to Cash Solutions. Cash Solutions charges a 7% factoring fee.Aug 8Received $165,200 from customers in payment on their accounts.Aug 9Borrowed $50,000 cash from State Bank, pledging $65,000 of accounts receivable as security for the loan. The note is a 90-day, 9% note.
What will be an ideal response?
1.
| Aug 3 | ? | Accounts Receivable..................................................... | 250,000 | ? |
| ? | ? | Sales................................. | ? | 250,000 |
| 3 | ? | Cost of goods sold........................................................ | 122,000 | ? |
| ? | ? | Merchandise Inventory........................................... | ? | 122,000 |
| 5 | ? | Cash (300,000 - 21,000).............................................. | 279,000 | ? |
| ? | ? | Factoring fee expense (300,000 * .07).................... | 21,000 | ? |
| ? | ? | Accounts Receivable............................................... | ? | 300,000 |
| Aug 8 | ? | Cash.............................................................................. | 165,200 | ? |
| ? | ? | Accounts Receivable............................................... | ? | 165,200 |
| Aug 9 | ? | Cash.............................................................................. | 50,000 | ? |
| ? | ? | Notes Payable.......................................................... | ? | 50,000 |
Accounts receivable of $65,000 are pledged as security for a $50,000 note payable.
3. Accounts receivable balance: $233,600 (448,800 + 250,000 - 300,000 - 165,200)
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