RECEIVABLE FINANCING

1. On December 1, 2019, an entity assigned on a non notification basis accounts

receivable of P5,000,000 to a bank in consideration for a loan of 80% of the
accounts less a 5% service fee on the accounts assigned. The entity signed a
note for the bank loan.

On December 31, 2019, the entity collected assigned accounts of P2,000,000

less discount of P200,000. The entity 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.

The entity accepted sales returns of P100,000 on the assigned accounts and
wrote off assigned accounts of P300,000.

1. What is the balance of accounts receivable assigned on December 31, 2019?

a. 3,000,000
b. 2,600,000
c. 2,400,000
d. 2,900,000

2. What is the carrying amount of the note payable on December 31, 2019?
a. 2,240,000
b. 2,000,000
c. 4,000,000
d. 2,200,000

3. What is the equity of the assignor in assigned accounts on December 31,

2019?
a. 2,600,000
b. 2,240,000
c. 360,000
d. 0

2. An entity factored P5,000,000 of accounts receivable. Control was surrendered

by the entity. The transaction met the criteria to be accounted for as sale but
subject to recourse fro nonpayment. The fair value of the recourse obligation is
P100,000. The finance company assessed a fee of 5% and retained a holdback
equal to 10% of the accounts receivable. In addition, the finance company
charged 12% interest computed on a weighted average time to maturity of the
accounts receivable for 30 days?

1. What amount was initially received from the factoring of accounts

receivable?
a. 4,250,000
b. 4,200,000
c. 4,700,000
d. 4,200,685

2. What total amount should be recognized initially as loss on factoring?

a. 299,315
b. 799,315
c. 250, 000
d. 399,315
3. An entity accepted from a customer in settlement of an account a P4,000, 000.
90-day 12% note dated August 31, 2019. On September 30, 20119, the entity
discounted the note at 15% with recourse at the bank. The note was paid in full
by the maker on maturity. The discounting is accounted for as a conditional sale
with recognition of a contingent liability.

1. What amount was received from the note receivable discounting?

a. 4,017,000
b. 4,120,000
c. 4,103,000
d. 3,965,500

2. What is the loss on note receivable discounting?

a. 40,000
b. 23,000
c. 17,000
d. 20,000

4. On April 1, 2019, an entity discounted with recourse a 9-month, 10% note dated
January 1, 2019 with face of P6,000,000. The bank discount rate is 12%. The
discounting transaction is accounted for as a conditional sale with recognition
of contingent liability.

On October 1, 2019, the maker dishonored the note receivable. The entity paid
the bank the maturity value of the note plus protest fee of P50,000.

On December 31, 2019, the entity collected the dishonored note in full plus 12%
annual interest on the total amount due.

1. What amount was received from the note receivable discounting?

a. 6,063,000
b. 6,450,000
c. 6,150,000
d. 5,963,000
2. What amount should be recognized as loss on note receivable
discounting?
a. 450,000
b. 387,000
c. 87,000
d. 63,000
3. What is the total amount collected from the customer on December 31,
2019?
a. 6,450,000
b. 6,500,000
c. 6,695,000
d. 6,662,500

4. If the discounting is secured borrowing, what is included in the journal

entry to record the transaction?
a. Debit interest expense P87,000
b. Credit liability for note discounted P6,000,000.
c. Credit interest income P150,000
d. All of these are included in the journal entry