Problem 7: (Dishonored note)

On April 1, 2018, Choco Flakes Company discounted with recourse a 9-month, 10% note dated January
1, 2018 with face of P6,000,000. The bank discount rate is 12%. The discounting transaction is accounted
for as a conditional sale with recognition of contingent liability.

On October 1, 2018, the maker dishonored the note receivable. The company paid the bank the
maturity value of the note plus protest fee of P50,000.

On December 31, 2018, the company collected the dishonored note in full plus 12% annual interest on
the total amount due.

1. Provide all the journal entries.

April 1

Notes Receivable 6,000,000

Sales 6,000,000

Cash 6,063,000

Loss on Notes receivable dioscounting 87,000

Notes receivable dioscounted 6,000,000

Interest Income (6,000,000*10%*3/12) 150,000

Protest fee 50,000

Notes receivable discounting 50,000

2. What amount was received from the note discounting on April 1, 2018?

Principal 6,000,000

Add:Accrued Interest (6,000,000*10%*3/12) 150,000

Matiurity value 6,150,000

Less: Discount 87,000

Amount of cash was received from the discounting ( Net Proceeds ) 6,063,000
3. What amount should be recognized as loss on note discounting?

Net Proceeds 6,063,000

Less: Carrying amount of note receivable

Principal 6,000,000

Add.: Accrued interest (6,000,000*10%*3/12) 150, 000

(6,150,000)

Loss on note receivable discounting (87,000)

4. What is the total amount collected from the customer on December 31, 2018?

Maturity Value (6,000,000*10%*9/12) 6,450,000

Add: Protest fee 50,000

Total amount due 6,500,000

Interst (6,500,000*12%*3/12) 195,000

Total amount to collected from customer 6,695,000