Page 1 of 2

REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

RECEIVABLE FINANCING AND NOTES RECEIVABLE
1. Purple Company showed the following balances on December 31, 2005:
Accounts receivable-unassigned
Accounts receivable-assigned
Allowance for doubtful accounts-January 1
Receivable from factor
Note payable-bank

P1,000,000
300,000
30,000
40,000
240,000

During the year 2005 Purple Company found itself in financial distress and decided to
resort to receivable financing.
On June 30, Purple Company factored P200,000 of its accounts receivable to a finance
company. The finance company charged a factoring fee of 5% of the accounts factored
and withheld 20% of the amount factored.
On December 31, Purple Company assigned P300,000 of its accounts receivable to a
bank under a nonnotification basis. The bank advanced 80% less a service fee of 5%
of the account assigned. Purple Company signed a promissory note for the loan.
On December 31, it is estimated that 5% of the outstanding accounts receivable may
prove uncollectible.
REQUIRED:
a. Entry to record the factoring.
b. Entry to record the assignment.
c. Entry to adjust the allowance for doubtful accounts on December 31.
d. Indicate the classification, presentation and disclosure of the accounts involved in
receivable financing.
2. Mangaldan Company obtained a one-year loan of P5,000,000 from a bank on April 1,
2005. The loan was discounted at 12%. The company signed a note and pledged its
accounts receivable of P5,000,000 as collateral for the loan. In relation to the loan,
Mangaldan should report note payable on December 31, 2005 at
a. P4,850,000
c. P5,450,000
b b. P4,400,000
d. P4,550,000
3. On December 1, 2005 Pozurrubio Company assigned on a nonnotification basis
accounts receivable of P5,000,000 to a bank in consideration for a loan of 90% of the
receivables less a 5% service fee on the accounts assigned. Pozurrubio signed a note
for the bank loan. On December 31, 2005, Pozurrubio collected assigned accounts of
P3,000,000 less discount of P200,000. Pozurrubio 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 agreed interest is 1% per month on the loan balance.
In its December 31, 2005 balance sheet, Pozurrubio should report note payable as a
current liability at
a. P1,745,000
c. P1,545,000
b. P1,700,000
d. P2,250,000

Page 2 of 2

4. Binalonan Company factored P5,000,000 of accounts receivable to ABC Company on

July 1, 2005. Control was surrendered by Binalonan. ABC assessed a fee of 5% and
retains a holdback equal to 20% of the accounts receivable. In addition ABC charged
12% computed on a weighted average time to maturity of the receivables of 30 days.
1. Binalonan Company will receive and record cash of
a. P3,700,685
c. P3,750,000
b. P3,700,000
d. P4,700,685
2. Assuming all receivables are collected, Binalonan Companys cost of factoring the
receivables would be
a. P250,000
c. P49,315
b. P299,315
d. P
0
5. On September 30, 2005, Asingan Company discounted at the bank a customers
P5,000,000 6-month 10% note receivable dated June 30, 2005. The bank discounted
the note at 12%. The proceeds from this discounted note amounted to
a. P5,092,500
c. P4,842,000
b. P5,250,000
d. P5,170,000
6. Urdaneta Company accepted from a customer P5,000,000, 120-day, 12% note dated
August 31, 2005. On September 30, 2005, Urdaneta discounted the note at the
National Bank. However, the proceeds were not received until October 1, 2005. In the
September 30, 2005 balance sheet, the amount receivable from the bank includes
accrued interest revenue of
a. P200,000
c. P44,000
b. P156,000
d. P
0
7. Umingan Company has a 10% note receivable dated June 30, 2005, in the original
amount of P9,000,000. Payments of P3,000,000 in principal plus accrued interest are
due annually on July 1, 2006, 2007 and 2008. In its June 30, 2007 balance sheet, what
amount should Umingan report as a current asset for interest on the note receivable?
a. P900,000
c. P300,000
b. P600,000
d. P
0
8. Balungao Company accepted a P5,000,000, 2% interest bearing note from Rosales
Company on December 31, 2005, in exchange for a machine with a list price of
P4,000,000 and a cash price of P3,750,000. The note is payable on December 31,
2007. In its 2005 income statement, Balungao should report the sale at
a. P3,750,000
c. P5,000,000
b. P4,000,000
d. P5,200,000
9. On January 2, 2005 Tayog Company sold equipment with a carrying amount of
P6,500,000 in exchange for P8,000,000 noninterest bearing note due January 2, 2008.
There was no established exchange price for the equipment. The prevailing interest
rate for this note on January 2, 2005 was 10%. The present value of 1 at 10% for three
periods is 0.75.
1. In the 2005 income statement, what amount should be reported as interest income?
a. P800,000
c. P660,000
b. P600,000
d. P740,000
2. In the 2005 income statement, what amount should be reported as gain or loss on
sale of equipment?
a. P1,500,000 gain
c. P500,000 gain
b. P 100,000 gain
d. P500,000 loss
- end -