On April 1, 2016, Shalimar Company discounted with recourse a 9-month, 10% note dated January 1,

2016 with face of 6,000,000. The bank discount rate is 12%. The discounting transaction is accounted for
a conditional sale with recognition of contingent liability. On October 1, 2020, the maker dishonored the
note receivable. The entity paid the bank the maturity value of the note plus protest fee of P50,000. On
December 31, 2016, the entity collected the dishonored note receivable in full plus 12% annual interest on
the total amount due.

1. What amount was received from the note receivable discounting on April 1, 2020?

а. 6,063,000

b. 6,450,000

c. 6,150,000

d. 5,963,000

SOLUTION:

Principal 6,000,000

Interest (6,000,000x10%x9/12) 450,000

Maturity Value 6,450,000

Less: Bank discount (6,450,000 x 12%x6/12) (387,000)

April 1, 2020 Discounted value of note 6,063,000

2. What amount should be recognized as loss on note receivable discounting?

a. 450,000

b. 387,000

c. 87,000

d.63,000

SOLUTION:

Principal 6,000,000

Add: Interest earned 150,000

Less: Discounted value of note (6,063,000)

Loss 87,000