Provided the following transactions:

April 5 Received from A, a customer, P500,000. 60-day, 12% note, dated

April 4, in payment of an account.

19 The note of A was discounted with the bank at 14%.

May 3 Received a P1,000,000, 30-day noninterest bearing note dated May

1 from B, in payment of an account.

16 The note of B was discounted with the bank at 12%.

25 Received from C, a customer, a P1,500,000, 60-day, 12% note

dated May 15 and made by Company X.
Gave the customer credit for the maturity value of the note less
discount at 12%.

Mythical Company
June 7 Received notice from the bank that the note of A was
not paid on maturity.

Paid bank the amount due plus protest fee and other
charges of P20,000.

15 Received a 60-day, 12% note, P800,000, dated June 15,

from D, a customer for sale of merchandise.

18 Received full payment from A including interest of 12%

on total amount due from maturity date of original note.

Mythical Company
REQUIRED:

A. Prepare journal entries to record the transactions

assuming any discounting of note receivable is
accounted for as conditional sale with recognition of a
contingent liability.
B. Prepare the necessary adjustments on June 30.

Mythical Company
REQUIREMENT A:
2015
April 5 Notes Receivable 500,000
Accounts Receivable 500,000

16 Cash 501,075
Loss on note discounting 1,425
Note Receivable discounted 500,000
Interest Income (500,000 x 12% x 15/360) 2,500
Principal 500,000
May 3 Notes Receivable 1,000,000 10,000
Interest (500,000 x 12% x 60/360)
Accounts Receivable
Maturity Value 510,000 1,000,000
Discount (510,000 x 14% x 45/360) 8,925
16 Cash Net Proceeds 995,000 501,075
Loss on note discounting 5,000
Note Receivable discounted 1,000,000
Principal 1,000,000
Discount (1,000,000 x 12% x 15/360) 5,000
Net Proceeds 995,000
2015
May 25 Notes Receivable 1,500,000
Interest Income 4,500
Accounts Receivable 1,504,500
Principal 1,500,000
June 7 AccountsInterest
Receivable (510,000
(1,500,000 x+ 20,000
12% ) 530,000 30,000
x 60/360)
Cash
Maturity Value 1,530,000 530,000
Discount (1,530,000 x 12% x 50/360) 25,500
Net Creditdiscounted
Notes Receivable 500,000 1,504,500
Notes Receivable 500,000

15 Notes Receivable 800,000

Sales 800,000

16 Cash 532,650
Accounts Receivable 530,000
Interest Income (530,000 x 12% x 15/360) 2,650
REQUIREMENT B:
2015
June 30 Accrued Interest Receivable (800,000 x 12% x 15/360) 4,000
Interest Income 4,000

Notes receivable discounted 1,000,000

Accrued interest on D’s note
Notes Receivable 1,000,000

To cancel the contingent liability on B’s

note