8 RECEIVABLE FINANCING

Technical Knowledge

• To identify the sources of financing through receivables.

• To know the accounting for pledge, assignment, and factoring of accounts receivable.
• To know the classification and presentation of pledged, assigned, and factored
accounts receivable.
• To know the concept of discounting of notes receivable.
• To understand the legal implication of discounting of note receivable.
• To distinguish discounting of note receivable with recourse and without recourse.

A. Concept of Receivable Financing

Receivable financing is the financial flexibility or capability of an entity to raise money out of its
receivables.

During a general business decline, an entity may find itself in tight cash position because sales
decrease and customers are not paying their accounts on time.

Under these circumstances, if the situation becomes very critical, the entity may be forced to look
for cash by financing its receivables.

B. Forms of Receivable Financing

a. Pledge of accounts receivable
b. Assignment of accounts receivable
c. Factoring of accounts receivable
d. Discounting of notes receivable

C. Pledge of Accounts Receivable

When loans are obtained from the bank or any lending institution, the accounts receivable may be
pledged as collateral security for the payment of the loan.

Normally, the borrowing entity makes the collections of the pledged accounts but maybe required
to turn over the collections to the bank in satisfaction for the loan.

The loan is recorded by debiting the cash and discount on note payable if loan is discounted and
crediting note payable.
 The subsequent payment of the loan is recorded by debiting note payable and crediting cash

With respect to the pledged accounts, no entry would be necessary. It is sufficient that disclosure
thereof is made in note to financial statement.

Illustration
On November 1, 2017, an entity borrowed $1,000,000 from First Bank International and issued
a promissory note for the same.

The term of the loan is per year and discounted at 12%. The entity pledged accounts receivables
of $2,000,000 to secure the loan.

Entry to record the loan on November 1, 2017:

Cash 880,000
Discount on note payable 120,000
Note payable - First Bank

If the loan is discounted, in the banking parlance this means that the interest for the term of the
loan is deducted in advance.

On December 31, 2017, using the straight line method, the discount on note payable is
amortized as interest expense for two months from November 1-December 31.

Entry on December 31, 2017:

Interest expense (120,000 x 2/12) 20,000

Discount on note payable

On November 1, 2018, the entry to record the payment:

Note payable - First Bank 1,000,000

Cash

Interest expense 100,000

Discount on Note payable

D. Assignment of Accounts Receivable

Assignment of accounts receivable means that a borrower called the assignor transfers rights
in some accounts receivable to a lender called the assignee in consideration for a loan.

Assignment may be done either on a nonnotification of notification basis. When accounts are
assigned on a nonnotification basis, customers are not informed that their accounts have been
assigned. As a result, the customers continue to make payments to the assignor who in turn
remits the collections to the assignee.
When accounts are assigned on a notification basis, customers are notified to make their
payments directly to the assignee.

The assignee usually lends only a certain percentage of the face vale of the accounts assigned
because the assigned accounts may not be fully realized by reason of such factors as sales
discount, sales return and allowances and uncollectible accounts. The percentage depends
on the quality of the accounts.

The assignee usually charges interest for the loan that makes and requires a service or financing
charge or commission for the assignments agreement.

Illustration - nonnotification basis

Apr. 1. An entity assigned $700,000 of accounts receivable to a bank under a non

notification arrangement. The bank advances 80% less a service charge of $5,000.

The entity signed a promissory note that provides for interest of 1% per month on
the unpaid balance

Step 1: Separate the assigned accounts from the unassigned accounts.

Accounts receivable - assigned 700,000

Accounts receivable

Step 2: Record the receipt of the loan.

Cash (700,000 x 80% - 5,000) 555,000

Service charge 5,000
Note payable - bank

5. Issued credit memo for sales return to a customer whose account was assigned,
$20,000.

Sales return 20,000

Accounts receivable - assigned

10. Collected $300,000 of the assigned accounts less 2% discount.

Cash (300,000 - 300,000 x 2%) 294,000

Sales discount (300,000 x 2%) 6,000
Accounts receivable - assigned

30. Remitted the total collections to the bank plus interest for one month.

Notes payable - bank 294,000

Interest expense (560,000 x 1%) 5,600
 Cash

May 7. Assigned accounts of $15,000 proved to be worthless.

Allowance for doubtful accounts 15,000

Accounts receivable - assigned

20. Collected $300,000 of the assigned accounts.

Cash 300,000
Accounts receivable - assigned

30. Remitted the total amount due the bank to pay off the loan balance plus interest for
one month.

Note payable - bank (560,000 - 294,000) 266,000

Interest expense (1% x 266,000) 2,660
Cash

Last step: Transfer the remaining balance of assigned accounts back to

accounts receivable unassigned.

Accounts receivable 65,000

Accounts receivable - assigned

Total accounts receivable - assigned

Less: Collections (294,000 + 300,000) 594,000
Sales discount 6,000
Sales returns 20,000
Worthless accounts 15,000
Balance

Illustration - notification basis

July 1. An entity assigned $1,000,000 of accounts receivable to a bank under a notification

arrangement. The bank loans 80% less 4% service charge on the gross amount
assigned.

The entity signed a promissory note that provides for 1% interest per month on the
unpaid loan balance.

Accounts receivable-assigned 1,000,000

Accounts receivable

Cash (800,000 - 40,000) 760,000

 Service charge (4% x 1,000,000) 40,000
Note payable - bank

31, Received notice from bank that $600,000 of the assigned accounts were collected
less 2% discount. A check was sent to the bank of the interest due.

Note payable - bank 588,000

Sales discount (2% x 600,000) 12,000
Accounts receivable - assigned

Interest expense (1% x 800,000) 8,000

Cash

Aug. 31. Received notice from bank that $300,000 of the assigned accounts were collected.
Final settlement was made by the bank for the excess collection together with the
uncollected assigned accounts of $100,000.

Cash 85,880
Interest expense 2,120
Note payable - bank 212,000
Accounts receivable - assigned

Accounts receivable 100,000

Accounts receivable - assigned
Computation:

Loan from bank

Less: July collection by bank
Balance due bank

August collection by bank

Less: : Loan balance
Excess collection
Less : Interest (1% x 212,000)
Remittance from bank

E. Statement Presentation
An entity provided the following accounts at year-end:

Accounts receivable-unassigned $
Accounts receivable-assigned
Allowance for doubtful accounts
Note payable-bank (related to assignment)
 Accounts receivable-unassigned $
Accounts receivable-assigned
Total $
Allowance for doubtful accounts
** Net realizable value $

**The net realizable value of $4,900,000 is included in the caption "trade and other receivables".

More over, the entity shall disclose its equity in the assigned accounts determined as follows:

Accounts receivable-assigned $
Note payable-bank
Equity in assigned accounts $

F. Factoring

Factoring is a sale of accounts receivable on a without recourse, notification basis. In a

factoring arrangement, am entity sells accounts receivable to a bank or finance entity called
a factor.

Accordingly, a gain or loss is recognized for the difference between the proceeds received
and the net carrying amount of the receivable factored. Factoring differs from an assignment
in that an entity actually transfers ownership of the accounts receivable to the factor.

Thus, the factor assumes responsibility for uncollectible factored accounts.

Factoring may take the form of the following:

a. Casual factoring
b. Factoring as continuing agreement

aa. Casual Factoring

If an entity finds itself in a critical cash position, it may be forced to factor some or all of its
accounts receivable at a substantial discount to a bank or a finance entity to obtain the much
needed cash.

Example:

An entity factored $100,000 of accounts receivable with an allowance for doubtful accounts
of $5,000 for $80,000.
Entry:
Cash 80,000
Allowance for doubtful accounts 5,000
Loss on factoring 15,000
Accounts receivable
bb. Factoring as a Continuing Agreement

Factoring may involve a continuing arrangement where a finance entity purchases all of the
accounts receivable of a certain entity.

In this setup, before a merchandise is shipped to a customer, the selling entity requests the
factor's credit approval. If it is approved, the account is sold immediately to the factor after
shipment of the goods. The factor then assumes the credit function as well as the collection
function.

For compensation, typically the factor charges a commission or factoring fee for its services
of credit approval, billing, collecting, and assuming uncollectible factored accounts. Moreover,
the factor may withhold a predetermined amount as a protection against customer return
and allowances and other special adjustments. This amount withheld is known as the
"factor's holdback". The factor's holdback is actually a receivable from factor and classified
as current asset.

Final settlement of the factor's hold bank is made after the factored receivables have been
fully collected.

Illustration
An entity factored accounts receivable of $500,000 with credit terms of 2/10, n/30 immediately
after shipment of the goods to the customer.

The factor charged a 5% commission based on the gross amount of the receivable factored.
in addition, the factor withheld 20% of the amount of receivables factored to cover sales
returns and allowances.

Journal entry to record the factoring

Cash 365,000
Sales discount (2% x 500,000) 10,000
Commission (5% x 500,000) 25,000
Receivable from factor (20% x 500,000) 100,000
Accounts receivable

If the customer is subsequently allowed a credit of $50,000 for damage merchandise, the
journal entry is:

Sales return and allowance 50,000

Sales discount (2% x 50,000)
Receivable from factor

When all the receivables factored are collected by the factor with no further returns and
allowances, the final settlement with the factor is recorded as follows:
 Cash (100,000 - 49,000) 51,000
Receivable from factor

G. Credit Cards
A credit card is a plastic card which enables the holder to obtain credit up to a predetermined
limit from the issuer of the card for the purchase of goods and services.

Illustration
Credit card sales to customers using Diners Club amount to $200,000 for a certain period. The
credit card receipt are forwarded to Diners club and payment is subsequently received from
Diners Club minus a 3% service charge.

1. To record the credit card sales:

Accounts receivable - Diners Club 200,000

Sales

2. To record the payment from Diners Club

Cash 194,000
Credit card service charge 6,000
Accounts receivable - Diners Club

H. Discounting of Note Receivable

As a form of receivable financing, discounting specifically pertains to note receivable. In a

promissory note, the original parties are the maker and payee

g1. Terms related to discounting of note

1. Net proceeds refer to the discounted value of the note received by the endorser from
the endorsee
Net proceeds = Maturity Value minus discount

2. Maturity value is the amount due on the note at the date of maturity.

Maturity Value = Principal plus Interest

3. Maturity date is the date on which the note should be paid.

4. Principal is the amount appearing on the face of the note.

5. Interest is the amount of interest in full term of the note.

 Interest = Principal x Rate x Time

6. Interest rate is the rate appearing on the face of the note.

7. Time is the period within which interest shall accrue.

8. Discount is the amount of interest deducted by the bank in advance

Discount = MV x DR x DP

9. Discount rate is the rate used by bank in computing the discount.

10. Discount period is the period of time from date of discounting to maturity.
Illustration - Discounting without recourse

Endorsement without recourse means that the endorser avoids future liability even if the maker
refuses to pay the endorsee on the date of maturity.

A $1,000,000, 180-day, 12% note dated July 1 was received from a customer and discounted
without recourse on August 31 at 15% discount rate.

1. Maturity value
Principal
Interest (1,000,000 x 12% x 180/360)

2. Discount period
Term of note 180
Days expired from July 1 to August 31 60
120

3. Discount
Maturity Value
Discount rate

Discount Period
Discount

4. Net proceeds from discounting

Maturity value
Discount

5. Carrying amount of note

 Principal
Interest (1,000,000 x 12% x 60/360)**

** Accrued interest from July 1 to August 31.

6. Gain/loss on discounting
Net proceeds
Carrying amount

7. Entry
Cash 1,007,000
Loss on note receivable discounting 13,000
Note Receivable
Interest income

Illustration - Discounting with recourse

A $2,400,000, 6-month 12% note dated February 1 is received from a customer by an entity
and discounted by First Bank on March 1, at 15%.

Principal
Interest (2,400,000 x 12% x 6/12)
Maturity Value
Discount (2,544,000 x 15% x 5/12)
Net proceeds

Principal
Accrued interest (2,400,000 x 12% x 1/12)

Net proceeds
Loss on note receivable discounting

Entries:
1. At the time of discounting
Cash 2,385,000
Loss on note receivable discounting 39,000
Note receivable discounted
Interest income

2. Note is paid at maturity by the maker

Note receivable discounted 2,400,000

Note receivable
g2. Note is dishonored by maker

Using the illustration above. If the note is dishonored by the maker on August 1, and the entity
pays the First Bank the maturity value of the note plus protest fee and other bank charges of
$6,000.

Journal entries:

1. To record the payment to First Bank

Accounts receivable 2,550,000

Cash

2. To cancel the contingent liability

Note receivable discounted 2,400,000

Note receivable

g3. Secured borrowing

If the discounting is treated as secured borrowing, the note receivable is not derecognized
but instead an accounting liability is recorded at an amount equal to the face amount of
the note receivable discounted.

Journal entry:
Cash 2,385,000
Interest expense 39,000
Liability for note receivable discounted
Interest income

Since the discounting transaction is a borrowing, interest expense can be netted against
the interest income or a net interest expense of $15,000.

Note is paid at maturity by the maker:

Liability for note receivable discounted 2,400,000

Note receivable

Note is dishonored by maker:

a. To record the payment to First Bank:
Accounts receivable 2,550,000
Cash

b. To derecognize the liability for note receivable discounted and note receivable:

Liability for note receivable discounted 2,400,000

 Note receivable

g4. Discounting own note

When the note discounted is made by the party discounting, a primary liability, not a
contingent liability, exists. In effect, the party discounting is entering into a contract of
loan with the endorsee.

For example, an entity discounted at the bank its own note of $500,000 at 12% for one
year on September 1, 2017.

Journal entry:
Cash 440,000
Discount on note payable 6,000
Note payable-bank

Principal
Discount (12%)
Net proceeds

December 31, 2017 amortization of discount:

Interest expense (60,000 x 4/12) 20,000
Discount on note payable

December 31, 2017 statement of financial position will have in the current liability:

Note payable-bank
Discount on note payable
Carrying amount
CING

f accounts receivable.
d, and factored

without recourse.

e money out of its

on because sales

may be forced to look

ts receivable may be

but maybe required

n is discounted and
d crediting cash

icient that disclosure

ational and issued

accounts receivables

1,000,000

for the term of the

20,000

1,000,000

100,000

r transfers rights

en accounts are
counts have been
gnor who in turn
o make their

accounts assigned
actors as sales
ntage depends

service or financing

nder a non
ce charge of $5,000.

1% per month on

ed accounts.

700,000

560,000

unt was assigned,

20,000

300,000
 299,600

15,000

300,000

nce plus interest for

268,660

ounts back to

65,000

700,000

635,000
65,000

under a notification
he gross amount

st per month on the

1,000,000
 800,000

unts were collected

600,000

8,000

unts were collected.

n together with the

300,000

100,000

800,000
588,000
212,000

300,000
212,000
88,000
2,120
85,880

4,000,000
1,000,000
100,000
400,000
 4,000,000
1,000,000
5,000,000
(100,000)
4,900,000

other receivables".

mined as follows:

1,000,000
(400,000)
600,000

basis. In a
ce entity called

eds received
an assignment

me or all of its
obtain the much

btful accounts

100,000
 ases all of the

y requests the
he factor after
s the collection

for its services

ounts. Moreover,
omer return

and classified

es have been

n/30 immediately

ivable factored.
cover sales

500,000

handise, the

1,000
49,000
 51,000

a predetermined

ertain period. The

received from

200,000

200,000

eivable. In a

he endorser from
even if the maker

er and discounted

1,000,000
60,000
1,060,000

days
days

1,060,000
15%
159,000
120/360
53,000

1,060,000
(53,000)
1,007,000
 1,000,000
20,000
1,020,000

1,007,000
1,020,000
(13,000)

1,000,000
20,000

mer by an entity

2,400,000
144,000
2,544,000
(159,000)
2,385,000

2,400,000
24,000
2,424,000
2,385,000
(39,000)

2,400,000
24,000

2,400,000
 1, and the entity
bank charges of

2,550,000

2,400,000

le is not derecognized
the face amount of

2,400,000
24,000

an be netted against

2,400,000

2,550,000

note receivable:
 2,400,000

ry liability, not a
into a contract of

000 at 12% for one

500,000

500,000
(60,000)
440,000

20,000

urrent liability:

500,000
(40,000)
460,000
8 LEARNING CHECK
1. Explain fully receivable financing.

2. What are the four common forms of receivable financing? Explain

each.

3. Distinguish pledge and assignment of accounts receivable.

4. What is the meaning of nonnotification and notification basis with

respect to assignment of accounts receivable?

5. Explain casual factoring and factoring as a continuing agreement.

6. Explain discounting of note receivable.

7. Give the formula in computing net proceeds from discounting of note

receivable.

8. Explain maturity value.

9. Explain discounting without recourse.

10. What is the formula in computing "discount"?

###problems
Problem 8-1 Multiple Choice
1. If accounts receivable are pledged against borrowings, the amount of accounts
receivable pledged shall be

a. Excluded from the total receivables with disclosure.

b Excluded from total receivables without disclosure.
c. Included in total receivables with disclosure.
d. Included in total receivables without disclosure.

2. It is a financing arrangement that is usually done on a "without recourse, notification

basis".

a. Pledge c. Factoring
b. Assignment d. Discounting

3. The equity of the assignor in assigned accounts is equal to

a. Assigned accounts receivable.

b. Bank loan balance.
c. Assigned accounts receivable minus the bank loan balance
d. Bank loan balance minus the assigned accounts receivable.

4. When accounts receivable are factored

a. Accounts receivable should be credited.

b. Payable to factor is credited.
c. A contingent liability is ordinarily created.
d. The factoring is accounted for as a borrowing.

5. It is a predetermined amount withheld by a factor as a protection against customer

returns, allowances, and other special adjustments.

a. Equity on assigned accounts c. Factor's holdback

b. Service charge d. Loss on factoring

6. If a note receivable is discounted with recourse

a. A contingent liability does not exist.

b. Note receivable discounted should be credited.
c. Liability for note receivable discounted should be credited.
d. Notes receivable must be credited.
 7. A note receivable bearing a reasonable interest rate is sold to a bank with recourse.
At the date of the discounting, the note receivable discounted account shall be

a. Decreased by the net proceed from discounting.

b. Increased by the net proceeds from discounting.
c. Increased by the face value of the note.
d. Decreased by the face value of the note.

8. After being held for 30 days, a 120-day 12% interest bearing note receivable was
discounted at a bank at 15%. The proceed received from the bank equal

a. Maturity value less discount at 12%.

b. Maturity value less discount at 15%.
c. Face value less discount at 12%.
d. Face value less discount at 15%.

9. The interest on a noninterest bearing note is equal to

a. The excess of the face value over the present value.

b. The excess of the present value over the face value.
c. The excess of the market value over the present value.
d. Zero.

10. Accounting for the interest in a noninterest bearing note receivable is an example
of what aspect of accounting theory?

a. Matching c. Substance over form

b. Verifiability d. Accounting entity

Problem 8-2
Zeus Company factored $6,000,000 of accounts receivable to a finance entity on October 1,
2017. Control was surrendered by Zeus Company. The factor assessed a fee of 3% and
retains a holdback equal to 5% of the accounts receivable. In addition, the factor charged
15% interest computed on a weighted average time to maturity of the accounts receivable of
54 days.

Required :
1. What is the amount of cash initially received by Zeus Company from the factoring:

2. If all accounts are collected, what is the cost of factoring the accounts receivable?

Problem 8-3
The following were taken from the books and records of Emerson Company:

May 1. Emerson company assigned $800,000 of accounts receivable to a bank in

consideration for a loan. A cash advance of 80% less service charge of $20,000
was made by the latter. It was agreed that interest of 2% per month is to be
made and that the assignor continues to make the collections. Emerson signed a
promissory note for the loan.
 5. Emerson issued a credit memo to a customer for returned merchandise, $30,000.
The account is one of the assigned account.

10. Collections of $500,000 of the assigned accounts were made, less 2% discount.

June 1. Remitted the collection to the bank plus 2% interest for one month.
7. Assigned accounts of $10,000 proved to be worthless.
20. Collections of $200,000 for the accounts assigned were made.

July 1. Final settlement was made with the bank. Emerson Company accordingly
remitted the total amount due the bank to pay off the loan plus interest charge.

Required:
Give the entries on the books of the assignor to record the above transactions.

Problem 8-4
Delta company provided the following transactions, among others, for the current year:

June 1. Sold merchandise to RJ company for $500,000, terms 2/10, n/30.

3. Factored the above accounts to Solid Finance under the following agreement:

Commission based on gross amount 5%

Holdback based on gross amount 25%

9. Granted RJ Company a credit allowance of $50,000 for damage in the shipment.

11. RJ Company paid in full its account to Solid Finance,
15. Final settlement was made with Solid Finance.

Required:
Journal entries to record the above transactions.

Problem 8-5
The following were taken from the records of Winter Company:

Jan. 15. Winter Company sold merchandise for $500,000 accepting a note of $500,000
for six months with interest to be paid at maturity at 12%.

Feb, 15. Winter company discounted the note at its local bank at 15%.
July 15. The customer paid the bank in full.

Required:
Prepare the necessary journal entries on the books of Winter Company to record the above
transactions.

Problem 8-6
Silver Company Provides the following information:

July 1. Factored $800,000 of accounts receivable without recourse with First Finance
on notification basis. First Finance charged a factoring fee of 5% of the amount of
receivable factored and withheld 10% of the receivable factored to cover the sales
return and allowances.

15. Received notice from First Finance that factored accounts are fully collected
less sales return and allowance of $20,000.

31. Received check from First Finance as a final settlement of the factoring contract.

Required:
Journal entries to record the above transactions.

Problem 8-7
Explore Company provided the following information in connection with a bank loan.

Mar. 1. Explore Company borrowed $2,000,000 from bank on a six-month note carrying
an interest of 12% per annum. Accounts of $3,000,000 are pledge to secure the
loan.

Apr. 1. Pledge accounts of $1,000,000 are collected minus 2% discount.

June 1. The remaining pledged accounts are collected.

Sept. 1. The bank loan is repaid plus interest.

Required:
Prepare journal entries to record the transactions.

Problem 8-8
Camilla Company sold accounts receivable without recourse for $5,300,000. Camilla
Company received $5,000,000 cash immediately from the factor. The remaining $300,000
will be received once the factor verifies that none of the accounts receivable is in dispute.
The accounts receivable had a face amount of $6,000,000. Camilla company had previously
established an allowance for bad debts of $250,000 in connection with these accounts.

Required:
What is the loss on factoring that will be recognized by Camilla Company?

Problem 8-9
On June 30, 2017, Ray Company discounted at the bank a customer's $6,000,000, 6-month,
10% note receivable dated April 30, 1017. The bank discounted the note at 12%.

Required:
Compute for the proceeds from this discounted note.

Problem 8-10
Maxim Company has experienced a critical cash flow problem largely occasioned by
collection problems with customers. Consequently, it has become involved in a number of
transactions relating notes receivable. The following transactions occurred during a period
ending December 31:

May 1. Received a $200,000, 90-day, 12% interest bearing note from Eve, a customer, in
settlement of an account.
1. Received a $300,000, six-month, 12% interest bearing note from Mina, a customer
in settlement of an account.
July 30 Eve defaulted on $200,000 note.
Aug. 1. Discounted the Mina note at the bank at 15%.
Sept. 1. Received one-year noninterest bearing note from Dera, customer, in a settlement of
a $120,000 account receivable. The face of the note was $132,000.
28. Collected the defaulted Eve note plus accrued interest 12% per annum on the
total amount due.
Oct. 1. Received $500,000, 90-day note from Ron, a customer. The note was in payment
for goods purchased and was interest bearing at 12%.
Nov. 1. Mina defaulted on the $300,000 note. Maxim Company paid the bank the total
amount due plus a $12,000 protest fee and other bank charges.
Dec. 30. Collected Ron note in full.
31. Collected from Mina in full including interest on total amount due at 12% since
default date.

Required:
Give the entries to record the above transactions. Show computations.
 1. What is the amount of cash initially received by Zeus Company from the factoring:
Account receivable 6,000,000
fee (6.000.000 x 3%) - 180,000
holdback (6.000.000 x 5%) - 300,000
Interest (6.000.000 x 15% x 54/365) - 133,151
5,386,849

2. If all accounts are collected, what is the cost of factoring the accounts receivable?
Factoring fee (6.000.000 x 3%) 180,000
Interest (6.000.000 x 15% x 54/365) 133,151
313,151

May 1 Accounts receivable - assigned 800,000

Accounts receivable

Cash (800,000 x 80%-20.000 ) 620,000

Service charge 20,000
 Note payable - bank

May 5 Sales return 30,000

Accounts receivable - assigned

May 10 Cash (500,000 - 500,000 x 2%) 490,000

Sales discount (500,000 x 2%) 10,000
Accounts receivable - assigned

June 1 Notes payable - bank 490,000

Interest expense (640,000 x 2%) 12,800
Cash

June 7 Allowance for doubtful accounts 10,000

Accounts receivable - assigned

June 20 Cash 200,000

Accounts receivable - assigned

July 1 Note payable - bank (640,000 - 490,000) 150,000

Interest expense (2% x 150,000) 3,000
Cash

June 1 Account Receivable 500,000

Sales

June 3 Cash 340,000

Sales discount (2% x 500,000) 10,000
Commission (5% x 500,000) 25,000
Receivable from factor (25% x 500,000) 125,000
Accounts receivable

June 9 Sales return and allowance 50,000

Sales discount (2% x 50,000)
Receivable from factor

June 11 no entry

June 15 Cash (125,000 - 49,000) 76,000

Receivable from factor

42,005 notes receivable 500,000

Sales 500,000
 42,036 Cash 496,875
Interest expense 3,125
notes receivable discounted 500,000

Principal 500,000
Interest (500.000 x 12%* 6/12) 30,000
Maturity Value 530,000
Discount (530.000*15%*5/12) 33,125
Net proceeds 496,875

July 15 notes receivable discounted 500,000

Note receivable 500,000

July 1 Cash 680,000

service charge (5% x 800,000) 40,000
Receivable from factor (10% x 800,000) 80,000
Accounts receivable 800,000

July 15 Sales return and allowance 20,000

receivable from factor 20,000

July 31 Cash 60,000

receivable from factor 60,000

36,951 Cash 2,000,000

Notes payable bank 2,000,000

36,982 Cash 980,000

Sales Discount 20,000
Account Receivable 1,000,000

June 1 Cash (3.000.000 - 1.000.000) 2,000,000

Account receivable 2,000,000

37,135 Notes payable Bank 2,000,000

interst expense (2.000.000 x 12%*6/12) 120,000
Cash 2,120,000
 Sales price 5,300,000
Carrying amount (6.000.000 - 250.000) 5,750,000
loss - 450,000

Principal 6,000,000
Interest (6.000.000 x 10%* 6/12) 300,000
Maturity Value 6,300,000
Discount (6.300.000*12%*4/12) 252,000
Net proceeds 6,048,000

May 1 Notes Receivable 200,000

Account Receivable 200,000
May 1 Notes Receivable 300,000
Account Receivable 300,000
July 30 Account Receivable 206,000
Notes Receivable 200,000
Interest income 6,000

Aug 1 Cash 306,075

Notes Receivable 300,000
Interest income 6,075

Principal 300,000
Interest (300.000 x 12%* 6/12) 18,000
Maturity Value 318,000
Discount (318.000*15%*3/12) 11,925
Net proceeds 306,075

37,135 Notes Receivable 132,000

Account Receivable 120,000
Interest income 12,000

46,997 Cash 210,120

Account Receivable 206,000
Interest income 4,120

Oct 1 Notes receivable 500,000

Sales 500,000
 37,196 Account receivable 330,000
Cash 330,000
notes receivable difaulted 300,000
notes receivable 300,000

Dec 30 Cash 515,000

Notes receivable 500,000
interest income 15,000

Dec 31 Cash 336,600

Account receivable 330,000
Interst income 6,600
 Total accounts receivable - assigned
800,000 Less: Collections (490,000 + 200,000) 690,000
Sales discount 10,000
Sales returns 30,000
Worthless accounts 10,000
640,000 Balance

30,000

Accounts receivable 60,000

Accounts receivable - assigned
500,000

502,800

10,000

200,000

153,000

500,000

500,000

1,000
49,000

76,000
800,000

740,000
 60,000

60,000