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Receivable Financing

Course

Intermediate Accounting 1 (2456)

82 Documents
Students shared 82 documents in this course
Academic year: 2018/2019
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Part II. Problems

  1. On July 1, 2019, Jon Snow Company sold equipment to Arya Stark Company for P1,000,000. Jon Snow accepted a 10% note receivable for the entire sales price. This note payable in two equal installments of P500,000 plus accrued interest on December 31, 2019 and December 31, 2020. On July 1, 2020, the entity discounted the note at a bank at an interest rate of 12%. What is the amount received from the discounting of note receivable?

A. 484,000 C. 503, B. 493,500 D. 517,

Sol:

Principal 500, Add: Interest (500,000 x 10%) 50, Maturity Value 550, Less: Discount (550,000 x 12% x 6/12) 33, Net Proceeds 517,

  1. Pledge Company accepted from a customer P1,000,000 face amount, 6-month, 8% note dated April 15, 2019. On the same date, the entity discounted the note without recourse at Union Bank at a 10% discount rate. What amount of cash received from the discounting?

A. 1,040,000 C. 988,

B. 990,000 D. 972,

Sol: Principal 1,000, Add: Interest (1,000,000 x 8% x 6/12) 40, Maturity Value 1,040, Less: Discount (1,040,000 x 10% x 6/12) 52, Net Proceeds 988,

23 the information in number 2, what is the loss on note receivable discounting?

A. 50,000 C. 52,

B. 40,000 D. 12,

Sol: Net Proceeds 988, Carrying amount of note receivable – equal to principal (1,000,000) Loss on note receivable discounting ( 12,000 )

  1. On June 30, 2019, Tyrion Company discounted at the bank a customer’s P6,000,000, 6- month, 10% note receivable dated April 30, 2019 bank discounted the note at 12% without recourse. What is the loss on note receivable discounting?

A. 252,000 C. 52,

B. 152,000 D. 48,

Sol: Principal 6,000, Add: Interest (6,000,000 x 10% x 6/12) 300, Maturity Value 6,300, Less: Discount (6,300,000 x 12% x 4/12) 252, Net Proceeds 6,048,

Principal 6,000, Accrued Interest (6,000,000 x 10% x 2/12) 100, Carrying amount of note receivable 6,100,

Net Proceeds 6,048, CA of Note Receivable (6,100,000) Loss on Note Receivable discounting ( 52,

= 600,000 / 4,400,

= 13%

  1. On August 31, 2019, Blackwater Company discounted with recourse a customer’s note at the bank at discount rate of 15%. The note was received from the customer on August 1, 2019, is for 90 days, has a face value of P5,000,000, and carries an interest rate of 12%. The customer paid the note to the bank on October 30, 2013, the date of maturity. If the discounting is accounted for as a secured borrowing, what is the interest expense to be recognized on August 31, 2019? A. 50,000 C. 28, B. 21,250 D. 25, Sol: Principal 5,000, Interest (5,000,000 x 12% x 90/360) 150, Maturity Value 5,150, Discount (5,150,000 x 15% x 60/360) 128, Net Proceeds 5,021,

Principal 5,000, Accrued Interest Receivable (5,000,000 x 12% x 30/360) 50, Carrying amount of note receivable 5,050,

Net Proceeds 5,021, Carrying amount of note receivable (5,050,000) Interest Expense ( 28,750 )

  1. On November 1, 2019, Cersei Company discounted with recourse at 10% a one-year, noninterest bearing, P2,050,000 note receivable maturing on January 31, 2020. The discounting of the note receivable is accounted for as a conditional sale with recognition of a contingent liability. What is the amount of contingent liability for this note must be disclosed in the financial statements for the year ended December 31, 2019? A. 2,050,000 C. 2,033, B. 2,000,000 D. 0 The contingent liability is equal to the principal or face value of the note receivable discounted.
  2. On December 1, 2019, Hero Company assigned P4000,000 of accounts receivable to Halo Company as a security for a loan of P335,000. Hero Company charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During December, Hero collected P110,000 on assigned accounts after deducting P380 of discounts. Hero accepted returns worth P1,350 and wrote off assigned accounts totaling P2,980. How much cash did Hero receive from Halo at the time of the transfer? A. 301,500 C. 328, B. 327,000 D. 335,

Sol: Loan Value 335, Less: Commission expense (335,000 x 2%) 6, Cash Received 328,

  1. Using the information on number 11, what is the carrying value of the accounts receivable assigned as of December 31, 2019? A. NONE C. 289, B. 285,290 D. 290, Sol: Account Receivable Assigned P400, Less: Amount Collected (110,000 + 380) P 110, Sales Return 1, Write-off 2,980 114, Carrying value of account receivable assigned P285,

  2. On December 1, 2019, M 2 M Company assigned on a non-notification basis accounts receivable of P3,000,000 to a bank in consideration for a loan of 80% of the receivables less a 5% service fee on the accounts assigned. The interest rate of the loan is 12% per annum. The company collected assigned accounts of P2,000,000 and remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The interest rate is 1% per month on the outstanding balance of the loan. In its December 31, 2019 statement of financial position, what amount of note payable should M 2 M report as current liability? A. 400,000 C. 424, B. NONE D. 1,024, Sol: Total loan (P3,000,000 x 80%) P2,400, Less: Principal Payment Total Payment P2,000, Less: Payment for interest (P2,400,000 x 1%) 24,000 1,976, Note Payable Balance 424,

  3. On October 31, 2011, Yellow Company engaged to the following transactions:  Obtained a P500,000, six-month loan from City Bank, discounted at 12%. The company pledged P500,000 of accounts receivable as security for the loan.  Factored P1,000,000 of accounts receivable without recourse on a non- notification basis with Crush Company. Crush charged a factoring fee of 2% of the amount of receivables factored and withheld 10% of the amount factored.

What is the total cash received from the financing of receivables? A. 1,320,000 C. 1,380, B. 1,350,000 D. 1,470,

A. 200,000 C. 800,

B. 500,000 D. 700,

Sol: Sales Price 5,000, Carrying amount of accounts receivable (5,800,000 – 600,000) 5,200, Loss on Factoring ( 200,000)

  1. Marupok Company factored P4,000,000 of accounts receivable without guarantee for a finance charge of 5%. The finance entity retained an amount equal to 10% of the accounts receivable for possible adjustments. What amount should be recorded as gain or loss on the transfer of accounts receivable? A. 200,000 gain C. 600,000 loss B. 200,000 loss D. 0 Sol: Loss on Factoring – equal to finance fee (5% x 4,000,000) 200,

  2. Payaman Company factored without recourse P2,000,000 of accounts receivable with a bank. The finance charged is 3% and 5% was retained to cover sales discounts, sales returns and sales allowances. What amount of cash was received on the sale of accounts receivable? A. 1,940,000 C. 1,840, B. 1,900,000 D. 2,000, Sol: Accounts Receivable 2,000, Finance Charge (3% x 2,000,000) ( 60,000) Factor’s holdback (5% x 2,000,000) (100,000) Cash Received from Factoring 1,840,

  3. Pikachu Company assigned P4,000,000 of accounts receivable as collateral for a P2,000,000 6% loan with a bank. The entity also paid a finance fee of 5% on the transaction upfront. What amount should be recorded as a gain or loss on the transfer of accounts receivable? A. 200,000 loss C. 240,000 gain B. 200,000 gain D. 0 Sol: No gain or loss is recognized because assignment of accounts receivable is a secured borrowing and not a sale.

  4. On December 1, 2019, Choi Company assigned specific accounts receivable totaling P2,000,000 as collateral on a P1,500,000, 12% note from a certain bank. The entity will continue to collect the assigned accounts receivable. In addition to the interest on the note, the bank also charged a 5% finance fee deducted in advance on the P1,500, value of the note. The December collections of assigned accounts receivable amounted to

P1,000,000 less cash discounts of P50,000. On December 31, 2019, the entity remitted the collections to the bank in payment for the interest accrued on December 31, 2019 and the note payable. What is the carrying amount of note payable on December 31, 2019? A. 500,000 C. 565, B. 550,000 D. 730, Sol: Note Payable 1,500, Principal Payment: Remittance 950, Interest (1,500,000 x 12% x 1/12) (15,000) 935, Note Payable – December 31 565,

  1. Using the information above, what amount should be disclosed as the equity of Choi Company in assigned accounts on Dec. 31, 2019? A. 500,000 C. 435, B. 450,000 D. 270, Sol: Accounts Receivable – assigned (2,000,000 – 1,000,000) 1,000, Note Payable (565,000) Equity of Choi Company in assigned accounts 435,

  2. ABA Co. factored P60,000 accounts receivable to CAB Financing Corp. on a without recourse basis on January 1, 2020. CAB charged a 4% service fee and retained a 10% holdback to cover expected sales returns. In addition, CAB charged a 12% interest computed on a weighted average time to maturity of the receivables of 73 days based on 365 days. How much proceeds is received from the factoring on January 1, 2020? A. 50,130 C. 50, B. 50,610 D, Sol: Account Receivable factored 60, Service Charge (60,000 x 4%) (2,400) Factor’s holdback (60,000 x 10%) (6,000) Interest Charge (60,000 x 12% x 73/365) (1,440) Proceeds from factoring 50,

  3. Based on the information in number 23, how much is the cost of factoring? A. 4,830 C. 4, B. 3,040 D. 3, Sol: Service Charge 2, Interest Expense 1, Cost of Factoring3,

  4. Miley Co. factored P5,000,000 of its accounts receivable. The transfer is recorded as

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Receivable Financing

Course: Intermediate Accounting 1 (2456)

82 Documents
Students shared 82 documents in this course

University: University of Mindanao

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Part II. Problems
26. On July 1, 2019, Jon Snow Company sold equipment to Arya Stark Company for
P1,000,000. Jon Snow accepted a 10% note receivable for the entire sales price. This note
payable in two equal installments of P500,000 plus accrued interest on December 31, 2019 and
December 31, 2020. On July 1, 2020, the entity discounted the note at a bank at an interest rate
of 12%. What is the amount received from the discounting of note receivable?
A. 484,000 C. 503,500
B. 493,500 D. 517,000
Sol:
Principal 500,000
Add: Interest (500,000 x 10%) 50,000
Maturity Value 550,000
Less: Discount (550,000 x 12% x 6/12) 33,000
Net Proceeds 517,000
27. Pledge Company accepted from a customer P1,000,000 face amount, 6-month, 8% note dated
April 15, 2019. On the same date, the entity discounted the note without recourse at Union Bank
at a 10% discount rate. What amount of cash received from the discounting?
A. 1,040,000 C. 988,000
B. 990,000 D. 972,000
Sol:
Principal 1,000,000
Add: Interest (1,000,000 x 8% x 6/12) 40,000
Maturity Value 1,040,000
Less: Discount (1,040,000 x 10% x 6/12) 52,000
Net Proceeds 988,000
23.Using the information in number 2, what is the loss on note receivable discounting?
A. 50,000 C. 52,000

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