1. Mabel Company provided the following information in connection with a bank loan.

March 1 Mabel Company borrowed P2,000,000 from bank on a six-month note carrying
an interest of 12% per annum. Accounts of P3,000,000 are pledged to secure the loan.

April 1 Pledged accounts of P1,000,000 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.

Mar 1 Cash 2,000,000

Note Payable 2,000,000
Apr 1 Cash 980,000
Sales Discount 20,000 (1M*2%)
Accounts Receivable 1,000,000
June 1 Cash 2,000,000
A/R 2,000,000
Sep 1 N/P 2,000,000
Finance Charge 120,000 (2M*12%*6/12)
Cash 2,120,000

2. Gorgeous Company provided the following transactions:

July 1 The entity assigned P500,000 of accounts receivable to its bank on a non-notification
basis in consideration for a loan. On this date, the bank advanced P400,000 less a service charge
of 2% of the total accounts assigned, and the entity signed a promissory note bearing interest of
1% per month on the unpaid loan balance at the beginning of the month.

Aug 1 Collected P330,000 on assigned accounts. The entity remitted this amount to the bank
in payment first for the interest and the balance to the principal.

Sep 1 Collected the remaining balance of assigned accounts. The entity paid off the remaining
loan balance.

Required:
Prepare journal entries to record the transactions.

July 1 A/R-assigned 500,000

A/R 500,000

Cash 390,000
Finance Charge 10,000 (500,000*2%)
N/P 400,000
 Aug 1 Cash 330,000
A/R-assigned 330,000

Finance Charge 4,000 (400,000*1%)

Note Payable 326,000
Cash 330,000

Sep 1 Cash 170,000

A/R-assigned 170,000

400,000 -326,000 = 74,000

Finance Charge 740 (74,000*1%)

N/P 74,000
Cash 74,740

3. Faint Company sold accounts receivable without recourse with face amount of P6,000,000. The
factor charged 15% commission on all accounts receivable factored and withheld 10% of the
accounts factored as protection against customer returns and other adjustments.

The entity had previously established an allowance for doubtful accounts P200,000 for these
accounts.

By year-end, the entity had collected the factor’s holdback there being no customer returns and
other adjustments.

Required:

Prepare journal entries to record the factoring and the subsequent collection of the factor’s
holdback.

Selling Price, net of service fee 6,000,000

Commission 900,000 6,000,000*15%
5,100,000
Book Value of A/R
6,000,000
(200,000) 5,800,000
Loss on factoring (700,000)

Cash Received
A/R Factored 6,000,000
Factor’s Holdback (600,000) 6,000,000*10%
Commission (900,000)
Cash Received 4,500,000
A. Cash 4,500,000
Loss on factoring 700,000
Factor’s Holdback 600,000
Allowance for Bad Debts 200,000
Accounts Receivable 6,000,000
B. Cash 600,000
Factor’s Holdback 600,000