ACC126 February 22, 2023

Problems on Receivable Financing

1) On December 1, 2022, ABC 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
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. On December 31, 2022, the entity remitted the collections to the bank in
payment for the interest accrued on December 31, 2022 and the note payable.

The entity accepted sales returns of P150,000 on the assigned accounts and wrote off assigned
accounts of P200,000.
a) What amount of cash was received from the assignment of accounts receivable on
December 1, 2022?
b) What is the carrying amount of note payable on December 31, 2022?
c) What is the balance of accounts receivable-assigned on December 31, 2022?
d) What amount should be disclosed as the equity of ABC Company in assigned accounts on
December 31, 2022?

2) On April 1, 2022, DEF Company discounted with recourse a 9-month, 10% noted dated January
1, 2022 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, 2022, 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, 2022, the entity collected the dishonored note in full plus 12% annual interest
on the total amount due.

A) What amount was received from the note discounting on April 1, 2022?
B) What amount should be recognized as loss on note discounting?
C) What is the total amount collected from the customer on December 31, 2022?
D) If the discounting is a secured borrowing, what is included in the journal entry to record the
transaction? (Select the number corresponding to your answer)
1) Debit loss on discounting P87,000
2) Debit interest expense P87,000
3) Credit liability for note discounted P6,063,000
4) Credit interest income P63,000