Mel-Tim Corporation has a $100,000 debt payment due in early August. In order to meet this obligation, on August 1, Mel-Tim decided to accelerate collection of accounts receivable by assigning $130,000 of specific accounts to a commercial lender as collateral for a loan. Under the agreement, Mel-Tim guarantees the accounts and will notify its customers to make their payments to the lender. In return, the lender will advance Mel-Tim 85% of the accounts assigned. The remaining 15% will be paid to Mel-Tim once the commercial lender has recovered its fees and related cash advances. The lender receives a fee of the total accounts assigned, which is immediately deducted from the initial cash advance. The lender also assesses a monthly finance charge of one half of 1% on any uncollected account balances. Finance charges are to be deducted from the first payment due Mel-Tim after the lender has recovered its cash advances.

On August 31, Mel-Tim received a statement from the lender saying it had collected $80,000. On September 30, Mel-Tim receives a check from the lender together with a second statement saying an additional $40,000 has been collected.
What are journal entries?

To determine the journal entries for Mel-Tim Corporation's transaction with the commercial lender, we need to analyze the events and their effects on the company's accounts.

1. On August 1:
- Mel-Tim assigns $130,000 of specific accounts receivable to the commercial lender as collateral for a loan.
- The lender advances 85% of the accounts assigned, which is $110,500 (85% of $130,000).
- The lender deducts a fee from the initial cash advance.
- The lender also assesses a monthly finance charge on any uncollected account balances.

The journal entry for this transaction would be:
Debit: Cash (110,500 - fee amount) - This represents the cash received from the lender after the deduction of the fee.
Debit: Finance Charge Expense - This represents the finance charge assessed by the lender.
Credit: Accounts Receivable (130,000) - This reflects the assignment of the accounts receivable to the lender.

2. On August 31:
- The lender notifies Mel-Tim that it has collected $80,000 from the assigned accounts.

The journal entry for this collection would be:
Debit: Cash (80,000 + finance charges recovered) - This represents the cash received from the lender, including any finance charges recovered.
Credit: Accounts Receivable (80,000) - This reduces the accounts receivable balance related to the collected amount.

3. On September 30:
- The lender sends Mel-Tim a check for an additional $40,000 collected.

The journal entry for this collection would be:
Debit: Cash (40,000 + finance charges recovered) - This represents the cash received from the lender, including any finance charges recovered.
Credit: Accounts Receivable (40,000) - This reduces the accounts receivable balance related to the collected amount.

It is important to note that the specific amounts for the fees and finance charges are not provided in the given information. You would need to determine those amounts based on the terms of the agreement with the lender.

To record the transactions related to the assignment of accounts receivable and subsequent collections, the following journal entries can be made:

August 1:
1. To assign accounts receivable as collateral and receive the initial cash advance:
Debit: Cash (85% of $130,000)
Credit: Accounts Receivable (specific accounts assigned)
Credit: Loan Payable (15% of $130,000)

August 1:
2. To record the fee charged by the lender (assume it is $10,000) deducted from the initial cash advance:
Debit: Loan Payable (fee charged by the lender)
Credit: Cash (fee deducted from the initial cash advance)

August 31:
3. To record the collection of $80,000 by the lender:
Debit: Cash (collected amount)
Credit: Accounts Receivable (assigned accounts collected)

August 31:
4. To record the finance charge (0.5% monthly finance charge on remaining uncollected balances):
Debit: Loan Payable (finance charge)
Credit: Finance Charge Expense (monthly finance charge)

September 30:
5. To record the collection of an additional $40,000 by the lender:
Debit: Cash (collected amount)
Credit: Accounts Receivable (assigned accounts collected)

September 30:
6. To record the finance charge (0.5% monthly finance charge on remaining uncollected balances):
Debit: Loan Payable (finance charge)
Credit: Finance Charge Expense (monthly finance charge)

It is important to note that the specific amounts of the fees and finance charges may vary based on the terms of the agreement.