Problem 21-3 (IAA)

On December 1, 2016, Bamboo Company assigned specific accounts receivable totaling

P4,000,000 as collateral on a P3,000,000, 12% note from a certain bank. The entity will continue
to collect the assigned accounts receivable. In addition to the interest on the note, the bank also
charged 5% finance fee deducted in advance on the P3,000,000 value of the note. The December
collections of assigned accounts receivable amounted to P2,000,000 less cash discount of
P100,000. On December 31, 2020, the entity remitted the collections to the bank in payment for
the interest accrued on December 31, 2016 and the note payable. The entity accepted sales
returns of P150,000 on the assigned accounts and wrote off assigned accounts of P200,000.

1. What amount of cash was received from the assignment of accounts receivable on
December 1, 2016?

a. 4,000,000

b. 3,000,000

c. 3,800,000

d. 2, 850,000

COMPUTATION:

Notes payable P3,000,000

Less: advance fee (5% x P3,000,000) (150,000)

P2,850,000

2. What is the carrying amount of note payable on December 31, 2016?

a. 1,000,000

b. 1, 100,000

c. 1,130,000

d. 1,460,000
COMPUTATIONS:

Notes receivable P3,000,000

Principal payment

(One month interest on notes payable)- (Collections - Cash discount)

(P3,000,000 x 12% x 1/12)- (P2,000,000 - P100,000)

(P1,900,000 - P30,000) (1,870,000)

Carrying amounts of notes payable P1,130,000