On April 1, 2012, Somers Company assigns $200,000 of its accounts receivable to Third National Bank as collateral for a $100,000 loan due July 1, 2012. The assignment agreement calls for Somers Company to continue to collect the receivables. Third National Bank assesses a finance charge of 3% of the accounts receivable, and interest on the loan is 8% (a realistic rate of interest for a note of this type).
Instructions:
(a) Prepare the April 1, 2012, journal entry for Somers Company.
(b) Prepare the journal entry for Somers's collection of $175,000 of the accounts receivable during the period from April 1, 2012, through June 30, 2012.
(c) On July 1, 2012, Somers paid Third National all that was due from the loan it secured on April 1, 2012.