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Chapter 6
Receivables – Additional Concepts

1. A 180-day, 12 percent interest-bearing note receivable is sold to a bank after being held for 45
days. The proceeds are calculated using a 15 percent interest rate. The note receivable has been
2. Discounted Pledged

a.   Yes Yes
b   Yes No
.
c.   No Yes
d  No No
.

3. A 90-day, 15 percent interest-bearing note receivable was immediately discounted at a bank at 12

percent. The proceeds received from the bank upon discounting would be the
a. maturity value less the discount at 15 percent.
b. maturity value less the discount at 12 percent.
c. face value less the discount at 15 percent.
d. face value less the discount at 12 percent.

4. The balance in Accounts Receivable is not reduced in recording which of the following types of
financing arrangements?
a. Assignment of specific accounts receivable
b. General assignment (pledge) of accounts receivable
c. Factoring of accounts receivable
d. Transfer of accounts receivable without recourse

5. When the accounts receivable of a company are sold outright to a company that normally buys
accounts receivable of other companies without recourse, the accounts receivable have been
a. transferred with recourse.
b. factored.
c. assigned.
d. pledged.

6. Which of the following is most likely not a condition before a transfer of receivables is accounted
for as a sale?
a. The transferred assets have been isolated from the transferor.
b. The transferor's obligation under the recourse provisions can be reasonably estimated.
c. The transferee has the right to pledge or exchange the transferred assets.
d. The transferor does not maintain effective control over the assets through an agreement to
repurchase the assets before their maturity.
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7. Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale, depending
upon the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued to the factor by the owner
of the receivables.
c. The factor assumes the risk of collectability and absorbs any credit losses in collecting the
receivables.
d. The financing cost (interest expense) should be recognized ratably over the collection period
of the receivables.

8. Which of the following is a method of generating cash from accounts receivable?

Assignment Factoring
a. Yes No
b. Yes Yes
c. No Yes
d. No No

9. Which of the following may be used to compute for the net proceeds from the discounting of a
note receivable?
a. Maturity value multiplied by the Discount
b. Maturity value less the Discount
c. Face amount less the Discount
d. Maturity value multiplied by the Discount rate multiplied by the Discount period.

10. The entry to record a note receivable discounted with a bank most likely includes
a. Debiting cash equal to the maturity value of the note
b. Crediting note receivable equal to the maturity value of the note
c. Debiting cash equal to the face amount of the note
d. Crediting note receivable equal to the face amount of the note

11. Which of the following may result to the derecognition of a receivable?

a. The contractual rights to the cash flows from the receivable expire.
b. The receivable is transferred and the transferor retains control over the transferred receivable.
c. The receivable is impaired.
d. a and c.

“Jesus replied: ‘Love the Lord your God with all your heart and with all your soul and with all your mind.’
This is the first and greatest commandment. And the second is like it: ‘Love your neighbor as yourself.’”
(Matthew 22:37-39)

-END-
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ANSWERS TO
1
. B 6. C
2
. B 7. B
3
. B 8. B
4
. B 9. D
5
. B 10. D
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Use the following information for the next two questions:

Jason Co. assigned ₱1,000,000 of accounts receivable to Easy Finance Co. as security for a loan of
₱840,000. Easy charged a 2% commission on the amount of the loan; the interest rate on the note was
10%. During the first month, Jason collected ₱220,000 on the assigned accounts after deducting ₱760
of discounts. Jason accepted returns worth ₱2,700 and wrote off assigned accounts totaling ₱7,400.

1.The amount of cash Jason received from Easy at the time of the transfer was
a. ₱756,000. c. ₱823,200.
b. ₱820,000. d. ₱840,000.

2.Entries during the first month would include a

a. debit to Cash of ₱220,760.
b. debit to Bad Debt Expense of ₱7,400.
c. debit to Allowance for Doubtful Accounts of ₱7,400.
d. debit to Accounts Receivable of ₱230,860.

Use the following information for the next two questions:

On February 1, 2004, Norton Company factored receivables with a carrying amount of ₱500,000 to
Koch Company. Koch Company assessed a finance charge of 3% of the receivables and retains 5% of
the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be
reported in the income statement of Norton Company for February.

3.Assume that Norton factors the receivables on a without recourse basis. The loss to be reported is
a. ₱0. c. ₱25,000.
b. ₱15,000. d. ₱40,000.

4.Assume that Norton factors the receivables on a with recourse basis. The recourse obligation has a
fair value of ₱2,500. The loss to be reported is
a. ₱15,000. c. ₱25,000.
b. ₱17,500. d. ₱42,500.

5.On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as collateral
on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts receivable.
Pacific also assesses a 2 percent service charge on the total accounts receivable assigned. Riva Co.
is to make monthly payments to Pacific with cash collected on assigned accounts receivable.
Collections of assigned accounts during September totaled ₱260,000 less cash discounts of
₱3,500. What were the proceeds from the assignment of Riva's accounts receivable on September
1?
a. ₱610,000
b. ₱612,500
c. ₱625,000
d. ₱735,000

6.On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as collateral
on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts receivable.
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Pacific also assesses a 2 percent service charge on the total accounts receivable assigned. Riva Co.
is to make monthly payments to Pacific with cash collected on assigned accounts receivable.
Collections of assigned accounts during September totaled ₱260,000 less cash discounts of
₱3,500. What amount is owed to Pacific by Riva Co. for September collections plus accrued
interest on the note to September 30?
a. ₱260,000
b. ₱262,750
c. ₱264,000
d. ₱266,250

7.Simpson Company held a ₱6,000, 3-month, 15 percent note. One month before maturity, it
discounted the note at 10 percent at a local bank. Approximately how much net income did
Simpson earn on the note?
a. ₱173
b. ₱52
c. ₱225
d. ₱60

8.If a 3-month non-interest-bearing note receivable of ₱10,000 is discounted at a bank at 10 percent,

how much cash is received?
a. ₱10
b. ₱1,010
c. ₱999
d. ₱9,750

9.On January 1, Parent Company gave Kids, Inc. a ₱5,000, 2-month, 6 percent note in payment of its
account. One month later, Kids discounted the note at the bank at 8 percent. The cash that Kids
received from the bank was (rounded to the nearest dollar)
a. ₱4,960. c. ₱5,016.
b. ₱5,010. d. ₱5,022.

10.On June 1, Clinton Corporation accepted a customer's ₱10,000, 9 percent, 3 month note. On July 1,
the note was discounted at a bank at a rate of 12 percent. How much cash did Clinton receive
from the bank on the discounted note?
a. ₱9,800.00 c. ₱10,020.50
b. ₱9,942.50 d. ₱10,250.00

“Bear in mind that our Lord’s patience means salvation, just as our dear brother Paul also wrote you with
the wisdom that God gave him.” (2 Peter 3:15)
- END -
SOLUTIONS
1. C ₱840,000 – ₱16,800 = ₱823,200.

2. C

3.B ₱500,000 × .03 = ₱15,000.

4.B (₱500,000 × .03) + ₱2,500 = ₱17,500.

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5.A [625,000 – (750,000 x 2%)] = 610,000

6.B (260,000 – 3,500) + (625,000 x 12% x 1/12) = 262,750

7. A
MV = 6,000 + (6,000 x 15% x 3/12) = 6,225
D = 6,225 x 10% x 1/12 = 51.88
NP = 6,225 – 51.88 = 6,173.12
Net interest = 6,173.12 net proceeds less 6,000 face amount = 173.12

8. D
MV = 10,000 + (10,000 x 0% x 3/12) = 10,000
D = 10,000 x 10% x 3/12 = 250
NP = 10,000 – 250 = 9,750

9. C
MV = 5,000 + (5,000 x 6% x 2/12) = 5,050
D = 5,050 x 8% x 1/12 = 33.67
NP = 5,050 – 33.67 = 5,016.33

10.C
MV = 10,000 + (10,000 x 9% x 3/12) = 10,225
D = 10,225 x 12% x 2/12 = 204.50
NP = 10,225 – 204.50 = 10,020.50