Pledge of Accounts Receivable

Pledging Accounts receivable as a collateral for the payment of

obligations. No journal entry should be made when pledging A/Rs

But should be made disclosure in the notes of Financial Statements

Record the loan received Oct 1, 2022

Cash 2,160,000
Discount on Notes payable 240,000
Notes payable 2,400,000

Discount of notes payable only occurs when stated in the problem, if the
problem is silent then disregard the discount.

When accounting period ends while the loan is still maturing, adjusting
the discount balance by multiply the months passed and dividing it to
the total months of the loan til maturing (12 months since its 1 year
agreement) to indicate the remaining discount on notes receivable,
and is amortized as interest expense.

Dec 31 2022
Interest Expense 60,000 (240,000x3/12)
Discount on Notes Payable 60,000

Disclosure; the carrying amount of the loan for Dec 31 2022

Face value 2,400,000
Discount on Notes payable 180,000
Carrying amount 2,220,000