University - Year 2

Accounting

DISCOUNTING

EXERCISE 7

Walleye Company provided the following transactions:

JAN 1 The entity sold merchandise for P500,000 accepting a note of P500,000
for six months with interest to be paid at maturity at 12%.
Jan-01 Notes receivable 500,000
Sales 500,000
MAR 1 The entity discounted the note without recourse at the local bank at 15%.
Mar-01 Cash 503,500
Loss on note discounting 6,500
Notes receivable 500,000
Interest income 10,000
Principal 500,000
Interest (500,000 x 12% x 6/12) 30,000
Maturity value 530,000
Discount (530,000 x 15% x 4/12) - 26,500
Net proceeds 503,500

Principal 500,000
Accrued interest receivable (500,000 x 12% x 2/12) 10,000
Carrying amount of N/R 510,000

Net proceeds 503,500

Loss: Carrying amount of N/R -510,000
Loss on note discounting -6,500
JUL 1 The customer paid the bank in full.
Jul-01 No entry
Required: Prepare journal entries to record the transactions.