Problem 2: (Assignment of Receivables)

On December 1, 2018, Echo Company assigned specific accounts receivable totaling P4,000,000 as
collateral on a
P3,000,000, 12% note from Metrobank. In addition to the interest on the note, Metrobank also charged
a 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 discounts of P100,000. The company accepted sales returns of
P150,000 on the
assigned accounts and wrote off assigned accounts of P200,000.

1. Prepare the journal entries to record the foregoing assuming the assignment is on a:

(a) Non-notification basis

(b) Notification basis

Non - notification

Dec. 1, 2018 Accounts recevable -assigned 4,000,000

Accounts receivable 4,000,000

Cash 2,850,000
Service charge (3M*5%) 150,000
Note payable - Metrobank 3,000,000

Dec. 31, 2018 Cash 1,900,000

Sales discount 100,000
Accounts receivable - assigned 2,000,000

Sales returns 150,000

Accounts recevable -assigned 150,000

Allowance for doubtful accounts 200,000

Accounts recevable -assigned 200,000

Accounts receivable
Accounts recevable -assigned
Notification

Accounts recevable -assigned 4,000,000

Accounts receivable 4,000,000

Cash 2,850,000
Service charge (3M*5%) 150,000
Note payable - Metrobank 3,000,000

Note payable - metrobank 1,750,000

Sales discount 100,000
Accounts receivable - assigned 2,000,000

Sales returns 150,000

Accounts recevable -assigned 150,000

Allowance for doubtful accounts 200,000

Accounts recevable -assigned 200,000

Accounts receivable
Accounts recevable -assigned

2. What amount of cash was received from the assignment of accounts receivable on December 1,
2018?

Note Payable 3,000,000

Finance Fee (150,000)
Cash received on Dec. 1, 2018 2,850,000

3. What is the carrying amount of note payable on December 31, 2018?

Note Payable 3,000,000

Less: Payments
Collection (3,000,000-100,000) 1,900,000

Interest (3,000,000x12%x1/12) (30,000) 1,870,000

Carrying amount of note payable on Dec. 31, 2018 1,130,000

4. What is the balance of accounts receivable – assigned on December 31, 2018?

Accounts receivable assigned 4,000,000

Collections (1,900,000)

Sales discounts (100,000)

Sales returns (150,000)

Accounts written off (200,000)

Balance of accounts receivables - assigned 1,650,000

5. What amount should be disclosed as the equity of Echo Company in assigned accounts on December
31, 2018?

Balance of accounts receivables - assigned 1,650,000

Less: Carrying amount of note payable 1,130,000

Equity in assigned accounts on Dec. 31,2018 520,000