Recording Secured Borrowing Using A/R
The internal auditor of Henson Company has found several transactions that were not
appropriately recorded in the Year 5 books. Based on her analysis, four transactions need to be
recorded before the accounting staff begins preparing the annual financial statements.
Using your knowledge of U.S. GAAP and the information provided by the internal auditor, make
the appropriate journal entries for each transaction. Remember, if your entry will change the
income statement, then you will need an entry for taxes!
Henson's incremental tax rate is 26%.
Round all of your answers to the nearest $1!
1. On February 1, Year 5, Henson used $750,000 of its receivables as collateral for a $675,000
4.5% loan from Agee Bank. As part of the loan agreement, Agee Bank assessed a finance
charge of 3%. Henson will continue to collect the pledged receivables and will remit the cash
collected each month to Agee as their debt payment. What journal entries would Henson
need to make to record this transaction? HINT: Don't forget taxes!