Question

The following selected transactions are from Ohlm Company.

2016

Dec. 16 Accepted a \(10,800, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable.

31 Made an adjusting entry to record the accrued interest on the Todd note.

2017

Feb. 14 Received Todd’s payment of principal and interest on the note dated December 16.

Mar. 2 Accepted a \)6,100, 8%, 90-day note dated this day in granting a time extension on the past-due account receivable from Midnight Co.

17 Accepted a \(2,400, 30-day, 7% note dated this day in granting Ava Privet a time extension on her past-due account receivable.

Apr. 16 Privet dishonored her note when presented for payment.

May 31 Midnight Co. refused to pay the note that was due to Ohlm Co. on May 31. Prepare the journal entry to charge the dishonored note plus accrued interest to Midnight Co.’s accounts receivable.

July 16 Received payment from Midnight Co. for the maturity value of its dishonored note plus interest for 46 days beyond maturity at 8%.

Aug. 7 Accepted a \)7,450, 90-day, 10% note dated this day in granting a time extension on the past-due account receivable of Mulan Co.

Sep. 3 Accepted a $2,100, 60-day, 10% note dated this day in granting Noah Carson a time extension on his past-due account receivable.

Nov. 2 Received payment of principal plus interest from Carson for the September 3 note.

Nov. 5 Received payment of principal plus interest from Mulan for the August 7 note.

Dec. 1 Wrote off the Privet account against the Allowance for Doubtful Accounts.

Required

2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the period? Explain the reason for this requirement and the accounting principle being satisfied.

Short answer

Answer

Accounting principles are those rules and regulations an organization should follow as prescribed under the GAAP while preparing the books of accounts at the end of each financial year.

Step-by-step solution

Step-by-Step SolutionStep 1: Reporting that is necessary when an organization pledges receivables as security for a loan

The footnotes of the financial statement are required when the company decides to pledge its accounts receivable as security for a loan, and the loan amount is still outstanding at the end of the accounting period.

Reason

It causes a result in disclosing the necessary information about the note by the organization and rendering its respective amounts in the company's financial statements.