On August 1, a firm assigned $20,000 of its $56,000 of accounts receivable. The finance company advanced 90% of the assigned accounts less a $2,000 fee. Interest is 12% and payable monthly on the beginning-of-period loan balance. A loan payment is remitted at the end of each month. Each payment includes principal and interest. The amount of each loan payment equals the cash collected on receivables during the month plus interest on the loan balance.
If $8,000 was collected on accounts receivable during August, the entry for the first loan payment would include a

Question

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The interest for the first month is calculated as 12% annually on the $16,000 loan balance (90% of $20,000 minus $2,000 fee), which is $160. Therefore, the interest expense is $160, not $180.

On August 1, a Firm Assigned $20,000 of Its $56,000