Name: Mario C. Lorico Jr.

517221 Date: March 26, 2021

Subject Code: ACC124 (9826) Score:

LET’S CHECK
EXERCISE 1:
1. Secured borroring or Conditional sale
2. Accounts Receivable
3. Notes receivable and interest income
4. False
5. False
6. False
7. Discounted
8. False

Let’s Analyze:
PROBLEM 1 Garliet Company
 DATE ACCOUNT TITLE POST REF. DR CR B. NOTIFICATION BASIS
Jan. 1/ 202x Accounts receivable -assigned 1,000,000 Jan. 1/ 202x Accounts receivable -assigned 1,000,000
Accounts receivable 1,000,000 Accounts receivable 1,000,000

Cash 784,000 Cash 784,000

Service charge 16,000 Service charge 16,000
Notes payable 800,000 Notes payable 800,000
To record assigned AR and NR
Jan. 15, 202xSales returns and allowances 10,000 #
Accounts receivable - assigned 10,000 Jan. 15, 202x Sales returns and allowances 10,000
To record approved sales returns Accounts receivable - assigned 10,000
# To record approved sales returns
Jan. 31, 202xCash 600,000 #
Accounts receivable - assigned 600,000 Jan.31,202x Notes Payable 600,000
Accounts receivable - assigned 600,000
Notes payable 600,000 To record collections
Interest expense 6,667
Cash 606,667 Interest expense 6,667
To record collections and remittance Cash 6,667
# #
Feb. 28, 202xCash 300,000
Accounts receivable-assigned 300,000 Feb. 28,202x Cash 98,333
Notes Payable 200,000
Interest expense 1,667
Notes Payable 200,000 Accounts receivable - assigned 300,000
Interest expense 1,667 To record collections
Cash 201,667
To record collections and remittance Accounts Receivable 90,000
Accounts Receivable-assigned 90,000
Accounts receivable 90,000 To record collection and uncollected AR
Accounts receivable - assigned 90,000 #
PROBLEM 2 Salen Company
 DATE ACCOUNT TITLE POST REF. DR CR

July 1, 2020 Account receivable-assigned 150,000

Accounts receivable 150,00

Cash 119,250
Finance charges 750
Notes Payable 120,000

July 31, 2020 Notes Payable 80,000

Accounts receivable assigned 80,000

Finance charge (70k x 0.005) 350

Finance charge payable 350

Aug. 31, 2020 Cash 9,550

Notes Payable 40,000
Finance charge (20k x 0.005) 100
Finance charge payable 350
Accounts receivable assigned 50,000
PROBLEM 3 Darwin Company

A/R- Jan. 1 (assigned) – collections Sales Price – Book Value of AR Service Charge:
= 100,000 – 60,000 = 40,000 160,000 – 180,000 (200k – 20k) 250,000 x 2% = 5,000

Service charge (100k x 0.02) – = 20,000 (loss) 250,000 – 155,000

2,000 =

Requirements:
1.) 12, 000 (2,000 +5,000 + 5,000) is the financing cost during the year
2.) 20,000 is the loss from the factoring alone during the year
3.) 100k – 60k 40,000
200,000 – 200,000 0
250,000 250,000
AR at year end 290,000

PROBLEM 4: Princess EJ Corp.

Requirements:
1. What conditions must be met for a transfer of receivables through factoring with recourse?
Answer: -Sellers retains all and other risk of receivable
-Seller guarantee buyer of the payment
-A conditional sale
2. Prepare the journal entry on August 15, 202X, for Princess EJ Corporation to record the conditional
sale of receivables.
Cash 325,500
*Factor’s Holdback 17,500
**Finance Charge 7,000
***Loss on factoring 7,000
Accounts Receivable 350,000

* 350,000 x 5% = 17,500
** 350,000 x 2% = 7,000
*** 343,000 – 350,000 = 7,000

PROBLEM 5: Joy Company

Requirement:
1. Prepare the necessary journal entry to record the above transactions.
Jan. 1, 2021 Notes Receivable 2,000,000
Sales 2,000,000

Jan 1, 2022 Cash 1,720,000

*Interest expense 280,000
Liability on NR discounting 2,000,000

Maturity Value = P2,000,000 + P0 = P2,000,000

Interest Income = P2,000,000 x 0% x 1 year = P0
Discount = P2,000,000 x 14% = 280,000
Proceeds = P2,000,000 – P280,000 = P1,720,000
*Interest expese – 1,720,000 – 2,000,000 = 280,000

2. How much is the carrying value of the notes receivable at December 31, 2021?
Answer: 2,000,000 – because the CA is equal to the face amount of the note since it is non-interest
bearing.

3. Assuming the customer failed to pay the notes on December 31, 2022, prepare the journal entry to
record the dishonored note.
Accounts Receivable 2,000,000
Cash 2,000,000

Liability on NR discounting 2,000,000

Notes receivable 2,000,000

PROBLEM 6: GARIEL COMPANY

Requirements:
1. Prepare the necessary journal entry to record the above transactions.
Jan. 1, 2021 Notes Receivable 1,500,000
Sales 1,500,000

Jan 1, 2022 Cash 1,375,000

Loss on NR Discounting 145,000
Notes Receivable Discounted 1,500,000
*Interest Income 20,000

Maturity Value = P1,500,000 + P120,000 = P1,620,000

Interest Income = P1,500,000 x 8% x 1 year = P120,000
Discount = P1,500,000 x 10% x 10/12 = 125,000
Proceeds = P1,500,000 – P125,000 = P1,375,000

* 1,500,000 x .08 x 2/12 = 20,000

2. Assuming that the March 1 transaction did not happen, prepare the necessary journal entry to record the
above transactions.
Accounts Receivable 1,620,000
Cash 1,620,000

Notes Receivable Discounted 1,500,000

Notes receivable 1,500,000
IN A NUTSHELL
Upon learning, studying, and understanding receivable financing, I also somehow learned why it’s an
essential factor for the business to continue its day-to-day operations and how it will affect them,
especially on the cash flow of their business for its sustenance, that is a crucial player for its survival.

In terms of its pros, I would say that receivable financing is one of the ways that gives the business an
opportunity to turn its bleak and doubtful inflow of cash into sure money, though reaching to other
financial institution which allowed them to do such thing. On the other hand, in terms of the cons, I would
say that receivable financing is also the process that makes the originally complicated process to much
more complex and hassle one since it provides much more additional work by setting up again everything
for the business to get cash flow that they want.