1. Prepare journal entries for Mars Co.

for:

(a) Accounts receivable in the amount of £500,000 were assigned to Utley Finance Co. by
Mars as security for a loan of £425,000. Utley charged a 3% commission on the accounts;
the interest rate on the note is 12%.

(b) During the first month, Mars collected £200,000 on assigned accounts after deducting
£450 of discounts. Mars wrote off a £530 assigned account.

(c) Mars paid to Utley the amount collected plus one month’s interest on the note.

2. On May 1, Dexter, Inc. factored €800,000 of accounts receivable with Quick Finance on a
without recourse basis. Under the arrangement, Dexter was to handle disputes concerning
service, and Quick Finance was to make the collections, handle the sales discounts, and absorb
the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable
factored and retained an amount equal to 2% of the total receivables to cover sales discounts.

Instructions

(a) Prepare the journal entry required on Dexter’s books on May 1.

(b) Prepare the journal entry required on Quick Finance’s books on May 1.

(c) Assume Dexter factors the €800,000 of accounts receivable with Quick Finance on a with
recourse basis instead. Prepare the journal entry required on Dexter’s books on May 1.

3. On December 31, 2021, Green Company finished consultation services and accepted in
exchange a promissory note with a face value of €400,000, a due date of December 31, 2024,
and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the
services is not readily determinable and the note is not readily marketable. Under the
circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.

Instructions

(a) Determine the present value of the note.

(b) Prepare a Schedule of Note Discount Amortization for Green Company under the
effective interest method. (Round to whole dollars.)