Rascal Corp. borrows $500,000 by signing on a 1-year, 12% promissory note from General Finance Company and assigns $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the receivables assigned. The journal entry for Rascal to record the borrowing will include a

Dr Cash 494,000

Dr Finance Charge expense6,000

Cr Liability - Financing arrangement 500,000

Explanation:

The journal entry for Rascal to record the borrowing

Since Rascal Corp was said to borrow $500,000 from the General Finance Company in which $600,000 of its accounts receivable as collateral for the loan was been assigned and the General Finance charges a financing fee of 1% of the receivables assigned which mean the transaction will be recorded as:

DrCash 494,000

(500,000-6,000)

Dr Finance Charge expense6,000

Cr Liability - Financing arrangement 500,000

Calculation for Cash (difference)

Account receivable $600,000 ×General Finance charges of 1% =Finance Charge expense 6,000

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