The Lazard Corporation has experienced cash flow problems and decides to improve its current cash position by factoring 30% of its receivables and assigning the remainder with the same finance company. The agreement with the finance company stipulates that a 10% commission will be assessed on factored accounts and 15% annual interest will be charged on the outstanding note payable balance related to the assigned accounts. Additionally, the finance company will advance only 80% of the factored and assigned accounts, and Lazard must continue the collection responsibilities on the assigned accounts. At the beginning of the last month of the company’s fiscal year, the accounts receivable transferred to the finance company amounted to $187,000. During the month, collections on factored accounts were $46,000, and collections on assigned accounts amounted to $84,000. All collections on assigned accounts plus accrued interest were remitted to the finance company at the end of the month. The remaining amounts owed will be remitted within these months.
1. Prepare all journal entries to record the preceding information on Lazard’s books.
2. How would the accounts related to Lazard’s factoring and assignment agreements be reported on Lazard’s year-end financial statements?