Pledging of Receivables Solutions

Illustration: Problem 10-18

Principal amount of the loan ₱900, 000
Less: interest (900,000x.10) (90,000)
Cash received ₱810,000

Assignment of Account Receivables

Illustration: Problem 10-19
Question No. 1
Principal amount of the loan ₱150,000
Less: Finance fee (150,000x.05) (7,500)
Cash received ₱142,500

Question no. 2
Notes Payable ₱150,000
Less: Principal Payment
Remittance 95,000
Less: interest (150,000x .12x3/12) 1,500 93,500
Notes Payable-Dec 3 ₱ 56,500

Question No 3
Accounts receivable-assigned (200,000-100,000) ₱100,000
Less: notes payable 56,500
Equity in assigned account ₱ 43,500

Factoring of Receivables Solutions

Illustration Problem 10-20
Entries to record transactions
Option 1: without recourse
Cash (400,000x.90) ₱360,000
Receivable from factor (25,000-[.05x400,000]) 5,000
Loss on sale of receivable (squeeze) 35,000
Notes Payable ₱ 400,000
Option 2: with recourse
Cash (400,000x.90) ₱ 360,000
Receivable from factor (25,000-[.04x400,000]) 9,000
Loss on sale of receivable (squeeze) 34,000
Notes Payable 400,000
Estimated Recourse liability ₱ 3,000
 Discounting of Notes
Illustration Problem 10-21
Case no 1 Discounting without Recourse
1. Principal ₱600,000
Add:interest over full credit period (600,000x.09x90/360) 13,500
Maturity Value ₱613,500
Less:Discount(613,500x.12x65/360) (13,292.50)
Net Proceeds from discount ₱600,207.50

2. Net proceeds from discounting ₱600,207.50

Less: CA on discounting date
Principal 600,000
Add: interest (600,000x09x25/360) 3,750 (603,750)
Loss on notes receivable discounting ₱ (3,542.50)

Case No 2 Discounting with recourse-conditional sale recognizing contingent

liability
3. Net proceeds from discounting ₱600,207.50
Less: CA on discounting date
Principal 600,000
Add: interest (600,000x09x25/360) 3,750 603,750
Loss on notes receivable discounting ₱(3,542.50)

4. Maturity Value of the note ₱613,500

Add: Protest fee and bank charges 5,000
Cash received-December 31 ₱ 618,500

Case No 3 Discounting with recourse-secured borrowing

5. Net proceeds from discounting ₱600,207.50
Less: CA on discounting date
Principal 600,000
Add: interest (600,000x09x25/360) 3,750 603,750
Loss on notes receivable discounting ₱ (3,542.50)

6. Maturity Value of the note ₱613,500

Add: Protest fee and bank charges 5,000
Cash received-December 31 ₱618,500
Discounting Own Note
Illustration Problem 10-22
1. Note Payable ₱250,000
Less: Discount on note payable (250,000x.12) (30,000)
Net Proceeds ₱220,000

Effective Rate=Discount/Net Proceeds

= 30,000/220,000
= 13.60%

2. JE to record transaction
Cash ₱220,000
Discount on note payable 30,000
Notes Payable` ₱250,000