University - Year 2

Accounting

EXERCISE 3
Docile Company assigned certain accounts receivable to a bank for a loan on the following basis: 75%
cash advance, 4% service charge on gross accounts assigned, 2% interest per month is to be charged,
and the bank makes the collections. The entity signed a promissory note for the loan.

JUL 1 Received remittance upon the specific assignment of P1,500,000 in

accounts to the bank.
Jul-01 Accounts Receivable - assigned 1,500,000
Accounts receivable 1,500,000
Cash 1,065,000
Service Charge (4% x 1,500,000) 60,000
Notes payable - bank 1,125,000
AUG 1 Received notice from bank that P800,000 of the assigned accounts were
collected. A check was sent to the bank for one-month interest charge.
Aug-01 Note payable - bank 800,000
Accounts receivable - assigned 800,000
Interest expense (2% x 1,125,000) 22,500
Cash 22,500
SEP 1 Received notice from bank that assigned accounts of P500,000 were
collected in full and the remaining accounts of P200,000 were being
returned. Accordingly, a check was received from the bank in settlement of
the assignment contract. In making the settlement; the bank deducted the
interest charge for the corresponding period.
Sep-01 Cash 168,500
Interest expense 6,500
Note payable - bank 325,000
Accounts receivable - assigned 500,000
Accounts Receivable 200,000
Accounts receivable - assigned 200,000
Collection by bank 500,000
Less: Payment of Loan (1,125,000 - 800,000) - 325,000
Excess collection 175,000
Less: Interest (2% x 325,000) - 6,500
Cash remittance from bank 168,500
Required: Prepare journal entries on the books of the assignor.