PROBLEMS Problem 8-1 (ACP) Pittance Company Provided the f ing i ss connection with a bank loan, following information in March 1 Pittance Company borrowed. 2,000,000 from bank on a six-month note carrying an interest of 12% per annum. Accounts of P3,000,000 secure the loan. ae i a April 1 Pledged accounts of P1,000,000 minus 2% discount. ‘ : ore elected June 1 The remaining pledged: accounts are collected. Sept. 1 The bank loan is repaid plus interest. Required: os Prepare journal entries to record the transactions. Problem 8-2 (ACP) : Idealist Company secured a one-year bank Joan of P4,000,000 on October 1, 2020. The loan was discounted at 10%. The entity signed a note for the loan and pledged 5,000,000 of its accounts receivable as collateral for the same. The accounting period of the entity ends on December 31. Required: 1. Prepare journal entries, including adjustment from the date of loan up to date of maturity. 2. Statement presentation of the bank loan with adequate disclosure on December 31, 2020. \ 237Problem 8-3 (IAA) Savior Company provided the followint assigned P800,000 of account, sideration for a loan, g transactions: May 1 Elegant Company as receivable to a bank in con Acash advance of 80% less service charge of P20, 099 was made by the latter. j of 2% per month is to be r continues to make the a promissory note for It was agreed that interest made and that the assigno’ collections. The entity signed the loan. 5 The entity issued a credit memo to a customer for ., returned merchandise, 30,000. The account is one of the assigned accounts. * 10 Collections of P500,000 of the assigned accounts were made, less 2% discount. shied June 1 Remitted the collections to the bank plus 2% interest for one month. 7 Assigned accounts of P10,000 proved to be worthless. , 20 Collections of P200,000 for the accounts assigned were made. 3 LEON & Seong bes July 1. Final settlement was made with the bank. Elegant Company accordingly remitted the total amount due the bank to pay off the loan plus interest charge. Required: Prepare journal entries to record the transactions. 2388Problem 8-4 (IAA) Docile Company assigned certain accounts receivabl to for a loan on the following basis: 75% cash advance, 4% bios charge ont cnd etane) assigned, 2% interest per month is to be charged, ¢ bank makes the collections. ity si a promissory note for the loan. cos, The cality signed July 1 Received remittan ce upon the specifi rT of P1,500,000 in accounts to the bank. seca cranial Received notice from bank that P800,000 of the assigned accounts were collected. A check was sent to the bank for one month interest charge. / Sept. 1 Received notice from bank that assigned accounts of P500,000 were collected in full and the remaining accounts of P200,000 were being returned. Accordingly, a check was received from the bank in settlement of the assignment contract. In making the settlement, the bank deducted the interest charge for the corresponding period. y Aug. 1 Required: _ Prepare journal entries on the books of the assignor. Problem 8-5 (IAA) Grateful Company provided the following transactions: July 1. The entity assigned P500,000 of accounts receivable to its bank on a nonnotification basis in consideration for a Joan. 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 ay unpaid: loan balance at the beginning of the month. : 4 Aug. ©1 Collected 330,000 on assigned accounts. ‘The entity remitted this amount to the bank in payment first for the interest and the balance to the principal. + Sept. 1 Collected the remaining balance of assigned accounts. z The entity paid off the remaining loan balance. Required: ; Prepare journal entries to record the transactions. 239Problem 8-6 (ACP) Bleak Company provided the following information: Dec. ‘Assi ] ,000 of accounts receivable to’, sa Pee eeee P aounotification basis in consideration for a loan. The bank advanced P1,300,000 less g service charge of P50,000. The entity signed g promissory note bearing interest of 1% per month on the unpaid loan:balance. - 31 Collected assigned accounts of P1,000,000 less sales discount of P30,000. i 31 Remitted the collection to the bank in payment first for the interest and the balance to the principal. Required: a. Prepare journal entries to record the transactions. b. - Indicate the classification and disclosure of the accounts related to the assignment on December 31. Problem 8-7.(IAA) Vain Company financed some of its current operations by assigning accounts receivable to a bank in consideration for a loan. On July 1, the entity assigned accounts of P800,000 under a notification basis. The bank advanced 80% less a 3% service charge of the total accounts assigned. The entity signed a promissory note bearing interest of 1% per month on the unpaid loan balance. On August 1, the entity received a statement that the bank had collected P420,000 of the assigned accounts. On September 1, the entity received a second statement from the bank, together with a check for the amount due. The statement indicated that the bank had collected P320,000 of the assigned accounts, ay 5 Required: Prépare journal entries on the books of the assignor to record _ the transactions. eld aes i 240Problem 8-8 (IAA) Dainty Company sold accounts receivable without recours: with face smount of P6,000,000. The factor charged 15% ere. Se aa none ols factored and withheld S factore i i es and other aijicen ee protection against customer The entity had previously establi accounts of P200,000 for these ae sie eumaentin By year-end, the entity had collected the ' being no customer returns and other Priel ili Required: Prepare journal entries to record the factoring and the subsequent collection of the factor's holdback. Problem 8-9 (IAA) : ‘ Generous Company provided the following information with respect to factoring of accounts receivable. July 1. Factored P800,000 of accounts receivable without recourse with a barik on notification basis.’ ‘The bank charged a factoring fee of 5% of the amount of accounts receivable factored and withheld 10% of the accounts receivable factored to cover sales return and. allowances. July 15 Received notice from the bank that factored accounts ; are fully collected less sales return and allowances of P20,000. : : [ 2 31 Received a check from the bank as a final settlement of the factoring contract. Required: ' Prepare journal entries to record the transactions. 241Problem 8-10 (AA) Corimonplace Company provided. the following transaction, for the current year. June 1 Sold merchandise to a customer for P500,000, terms 2/10, n/30. . 7 3 Factored the account to a bank. The bank charge 5% commission and 25% holdback. 9 Granted the customer a credit allowance of P50,009 for damage in the shipment. 11 The customer paid in full its account to the bank. 15 Final settlement was made with the bank. Required: Prepare journal entries to record the transactions. Problem 8-11 (IAA) A factor has agreed to purchase selected accounts receivable from Epic Company. The factor charged 5% commission and 20% holdback. The following accounts are sold on July 26: Invoice date Customer : Amount July 23 ~ A 300,000 July 25 B 500,000 July 24 Cc 200,000 On July 28, customer B was granted a credit of P50,000 for returned merchandise. Final settlement is made with the factor on August 31. Required: Prepare journal entries to record the transactions on th? books of Epic Company. ¢ 242problem 8-12 (IAA) Lucid Company showed the following balances on December 31: Accounts receivable-unassigned Accounts receivable-assigned to on00 ‘Allowance for doubtful ccounte January 1 30,000 Receivable from factor 40,000 Note payable-bank 240,000 During the current year, the entity found itself in financial distress and decided to resort to receivable financing. On June 30, the entity factored P200,000.of accounts receivable to a finance entity. The finance entity charged a factoring fee of 5% of the. accounts factored and withheld 20% of the amount factored. On December 31, the entity assigned P300,000 of accounts receivable to a bank under a nonnotification basis. . The bank advanced 80% less a service fee of 5% of the accounts assigned. The entity signed a Promissory note for the aren On December 31, it is estimated that 5% of the ‘outstanding. accounts receivable may prove uncollectible. Required: 1. Prepare journal entry to record the factoring. 2. Prepare journal entry to record the assignment. 3. Prepare journal entry to-adjust the allowance for doubtful. _ accounts on December 31. 4. Indicate the classification, presentation and disclosure of the accounts receivable involved in receivable financing. 243Problem 8-13 (IAA) . ing to other entit; Freeway Company provides financing es by . Purchasing accounts receivable on & nonrecourse basis, Freeway Company charges the clients @ commission of i5y, on all accounts receivable factored. ‘ In addition, Freeway Company withholds ae of accounts receivable factored as protection against sales returns o, other adjustments. Freeway Company credits the 10% withheld to Clients Retainer account and makes payments to clients at the eng of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Experience has led Freeway Company to establish an allowance for doubtful accounts of 4% of all unpaid accounts receivable purchased. ‘ : . a On December 1, Freeway Company purchased accounts receivable from Motorway Company totaling P3,000,000. Motorway Company had previously established an allowance for doubtful accounts for the accounts receivable at P100,000. By December 31, Freeway Company had collected P2,500,000 on the accounts receivable. Required: 1. Prepare journal entries to record the transactions on the books of Motorway Company (seller of accounts receivable). . 2. Prepare journal entries on the books of Freeway Company (factor or buyer of accounts receivable). 244PROBLEMS a Problem 9-1 (ACP) Walleye Company provided the following transactions; Jan. 1 The entity sold nierchandise for P500,000 accepéj ‘a note of P500,000 for six months with interest to be paid at maturity at 12%. March 1. The entity discounted the note without recourse af the local bank at 15%. July 1. The customer paid the bank in full. Required: Prepare journal entries to record the transactions. Problem 9-2 (IAA) Morale Company provided the following transactions; March 14 Sale of merchandise, P2,050,000 to a customer, : FOB destination 2/10, n/30.. April 7 Receipt of a 60-day, 12% note dated April 5 from the customer. The face of the note was the amount of the invoice minus freight charge of P50,000 paid by the customer in connection with the March 14 sale. 20 The note of the customer was discounted with the : bank at 15%. June 4 Receipt of notification from bank that the customer dishonored the note. Accordingly, the entity paid the bank the amount due including protest fee and , other charges of P10,000. July 4 Receipt of cash from the customer for the full amount of indebtedness ‘plus interest on the original face value. Required: - Prepare journal entries to record the transactions assuming any discounting of note receivable is uccounted for as @ conditional sale with recognition of a contingent liability. 262problem 9-3 CAA) +a] Company provided th . . mythical © following transactions Received from A, a custo: i 5 apsil note, dated April 4, in P mer, P500,000, ayment of no” 60-day, 12% an account. 19 The note of A was discounted with the bank at 14%, 3 Received a P1,000,000, 30-day noninterest bearin; note dated May 1 from B, in Payment of an lesan 16 The note of B was discounted with the bank at 12%. May “25 Received from C, a customer, 12% note dated May 15 and Gave the. customer credit for the note less discount at 12%. a P1,500,000, 60-day made by Company X. the maturity value of 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, | 800,000, 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. 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. ». Prepare the necessary adjustments on June 30. 263Problem 9-4 (IAA) Neophyte Company has experienced a critical cash flow probley, largely occasioned by collection problems with customers, Consequently,.it has become involved in a number of transactions relating to notes receivable. The following transactions occurred during a period ending December 31: i May 1 Received a P200,000, 90-day, 12% interest bearing note from EF, a customer, in settlement of an account. = 1 Received a P300,000, six-month, 12% interest bearing note from MN, a customer, in séttlement of an account, July ‘30 EF defaulted on the P200,000 note. Aug. 1 Discounted the MN note at the bank at 15%. Sept. 1 Received a one-year noninterest bearing note from DJ, a customer, in settlement of a P120,000 account receivable. The face of the note was P132,000. 28 Collected the defaulted EF note plus accrued interest 12% per annum on the total amount due, Oct.. 1 Received a P500,000, 90-day note from RS, a customer. The note was in payment for goods sold , “and was interest bearing at 12%. Nov. 1 MN defaulted on the P300,000 note. The entity paid the bank the total amount due plus a P12,000 protest ‘ fee and other bank charges. : 3 Dec. 30 Collected RS note in full. rr § 81 Collected from MN in full including interest on total amount due at 12% since default date. Required: Prepare journal entries to record the transactions assuming any discounting of note receivable is accounted for a8 conditional sale with recognition of a contingent liability. 264gst 31, 2020, Stable c * Ompa: . on ina custorens "note af the Pea (tcounied with rate of note Was received from the custo, Lan ‘90 days, had a face amount of Peron August 1, 2020, terinterest rate of 12%, 000,000, and carried a customer paid the note to the ante of maturity. bank’ on October 30, 2020, pequired: j 1 entries relat repare journal e1 related to th Prawvable, assuming the discounting secured borrowing. problem 9-6 (LAA) © € discounting of note 18 accounted for as a on January 1, 2020, Machete Company sold 1: i carrying amount of P1,500,000 in exchange for aoe 10% note with face value of P2,000,000. , The 10% rate properly reflects the time value of money for this type of note. ' On April 1, 2020, the entity discounted the note with ‘recourse. The bank discount rate is 12%. The discounting transaction is accounted for as a secured borrowing. On October 1, 2020, the maker dishonored the note receivable. The entity paid the bank the maturity value of the note plus protest fee of P10,000.. On December 31, 2020, the entity collected the dishonored note receivable in full plus 12% annual interest on the total amount due. Required: Prepare journal entries to record the transactions. 265Problem 9-7 (IAA) Chameleon Company provided the following data for the current year. June 1 Received from Aye Company & P5,000,000, 12% a . 90-day note for merchandise sold. July 1 , Received from Bee Company a P6,000,000, 10% 60-day note in full payment of an account. 1 Discounted the Aye Company note at the bank at 12%, 16 Discounted the Bee Company note at the bank at 12%. : August 30 The bank notified Chameleon Company that the Bee Company note was paid. 30 The bank notified Chameleon Company that Aye Company defaulted on the note and charged the amount of principal, interest and a fee of P20,000 against Chameleon's bank account. Dec. 30 Received full payment from Aye Company for the dishonored note plus 12% annual interest on the total amount due for four months. Required: Prepare journal entries to record the transactions on the assumption: 1. The discounting of note receivable is accounted for as @ secured borrowing. 2. The discounting of note receivable is accounted for 4 conditional sale with recognition of contingent liability: 266