ANSWERS

1. a. I, II, III and IV

2. d. Does not require note disclosure relating to details of transaction.
3. c. Remain the same
4. c. debit to Allowance for Doubtful Accounts of P7,400.
5. d. P297,820
6. a. P872,500
7. b. P89,500
8. c. The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables.
9. c. The factor’s net income will be the difference between the financing income of P30,000 and the amount of any uncollectible receivables.
10. a. Milktea Co. reports both a receivable and a liability of P1,000,000 in its statement of financial position.
11. c. P922,000
12. a. P2,546,250
13. c. P100,800
14. b. P1,200
15. c. The entity shall report net interest income of P800.
16. a. P13,310
17. c. Both a and b.
SOLUTIONS

4. Accounts receivable - assigned 1,000,000.00

Accounts receivable 1,000,000.00

Cash (840,000 x 98%) 823,200.00

Service charge (840,000 x 2%) 16,800.00
Loan payable 840,000.00

Cash 220,000.00
Sales dicount 760.00
Accounts receivable - assigned 220,760.00

Sales return 2,700.00

Accounts receivable - assigned 2,700.00

Allowance for doubtful accounts 7,400.00

Accounts receivable - assigned 7,400.00

5. Accounts receivable - assigned

(1,800,000 - 700,000 - 1,120 -1,060) 1,097,820.00
Loan payable (1,500,000 - 700,000) - 800,000.00
Equity in assigned accounts 297,820.00

6. Loan payable (2,500,000 x 90%) 2,250,000.00

Accrued interest (2,250,000 x 1%) 22,500.00
Remittance (1,500,000 - 100,000) - 1,400,000.00
Carrying amount, December 31 872,500.00

7.
Interest (900,000 x 14% x 1/12) 10,500.00

Accounts receivable - assigned

(1,000,000 - 80,000) 920,000.00
Loan payable (900,000 - (80,000 - 10,500)) - 830,500.00
Equity in assigned accounts 89,500.00

11. Face value of accounts receivable factored 400,000.00

Factoring fee (400,000 x 10%) - 40,000.00
Factor's holdback (400,000 x 5%) - 20,000.00
Proceeds from factoring 340,000.00
Proceeds from assignment (600,000 x 97%) 582,000.00
Total proceeds 922,000.00

12. Principal 2,500,000.00

Interest (2,500,000 x 10% x 6/12) 125,000.00
Maturity value 2,625,000.00
Discount (2,625,000 x 12% x 3/12) - 78,750.00
Net cash proceeds from discounting 2,546,250.00
13. Principal 100,000.00
Interest (100,000 x 12%) 12,000.00
Maturity value 112,000.00
Discount (112,000 x 12% x 10/12) - 11,200.00
Net cash proceeds from discounting 100,800.00

14. Principal 100,000.00

Accrued interest receivable (100,000 x 12% x 2/12) 2,000.00
Carrying amount 102,000.00
Net cash procees from carrying amount - 100,800.00
Loss on discounting 1,200.00

15. Interest income 2,000.00

Interest expense - 1,200.00
Net interest income 800.00

16. Principal amount 13,000.00

Interest income (13,000 x 8% x 90/360) 260.00
Maturity value 13,260.00
Protest fee 50.00
Notes Receivable Dishonored 13,310.00