PLEDGING

Problem 8-1
March 1 Pitt 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.
March 1 Cash 2,000,000
Note payable-bank 2,000,000
April 1 Cash 980,000
Sales discount 20,000
Accounts receivable 1,000,000
June 1 Cash 2,000,000
Accounts receivable 2,000,000
Sept. 1 Note payable-bank 2,000,000
Interest expense* 120,000
Cash 2,120,000

*12% x 2,000,000 x 6/12

 Problem 8-2
Idealist Company secured a one-year bank loan
of P4,000,000 on October 1, 2022. The loan was
discounted at 10%.

The entity signed a note for the loan and

pledged P5,000,000 of its accounts receivable
as collateral for the same. The accounting
period of the entity ends on December 31.
 Problem 8-2
Required:
(1) Prepare journal entries, including
adjustment from the date of loan up to date of
maturity

(2) Statement of presentation of the bank loan

with adequate disclosure on December 31,
2022.
2022 Cash 3,600,000
Oct. 1 Discount on NP (10% x 4M) 400,000
Note payable-bank 4,000,000
Dec 31 Interest expense (400k x 3/12) 100,000
Discount on note payable 100,000
2023 Note payable-bank 4,000,000
Oct. 1 Cash 4,000,000
Dec. 31 Interest expense 300,000
Discount on note payable 300,000
Requirement 2

Current liabilities
Note payable –bank (note 3) 4,000,000
Discount on note payable (300,000)
Carrying amount 3,700,000

Note 3- Note payable bank

Accounts of P5,000,000 are pledged to secure the
bank loan of P4,000,000.
 ASSIGNMENT OF
ACCOUNTS RECEIVABLE
Non-notification basis = customers are
not informed that their accounts have
been assigned.

Notification basis = customers are

informed that their accounts have been
assigned.
Non-notification basis = customers
continue to make payments to the
assignor, who in turn remits the collection
to the assignee.

Notification basis = customers are notified

to make their payments directly to the
assignee (e.g bank)
 Problem 8-3
Prepare journal entries to record the
transactions.
Problem 8-3
Elegant Company provided the following
transactions:
May 1 Elegant company assigned P800,000 of accounts
receivable to a bank in consideration for a loan. A
cash advance of 80% less service charge of P20,000
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. The entity signed a promissory note for
the loan.
Problem 8-3
Elegant Company provided the following
transactions:
May 5 The entity issued a credit memo to a customer for
returned merchandise, P30,000. The accounts is
one of the assigned accounts.
May 10 Collections of P500,000 of the assigned accounts
were made, less 2% discount.
June 1 Remitted the collections to the bank plus 2%
interest for one month.
Problem 8-3
Elegant Company provided the following
transactions:
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.
Problem 8-3
Elegant Company provided the following
transactions:
May 1 Accounts receivable- assigned 800,000
Accounts receivable 800,000

Cash (640,000-20,000) 620,000

Service charge 20,000
Note payable-bank 640,000
Problem 8-3
Elegant Company provided the following
transactions:
May 5 Sales return 30,000
Accounts receivable-assigned 30,000
May 10 Cash 490,000
Sales discount(2%x500,000) 10,000
Accounts receivable-assigned 500,000
June 1 Note payable-bank 490,000
Interest expense(2% x 640,000) 12,800
Cash 502,800
Problem 8-3
Elegant Company provided the following
transactions:
June 7 Allowance for doubtful accounts 10,000
Accounts receivable assigned 10,000

June 20 Cash 200,000

Accounts receivable assigned 200,000
Problem 8-3
Elegant Company provided the following
transactions:
July 1 Note payable-bank(640k-490k) 150,000
Interest expense (2%x150,000) 3,000
Cash 153,000

Accounts receivable 60,000

Accounts receivable-assigned 60,000
Problem 8-3
Elegant Company provided the following
transactions:
July 1 Accounts receivable-assigned 800,000
Less: collections (690,000)
sales discount 10,000
sales return 30,000
worthless accounts 10,000 (50,000)
Balance 60,000
 Problem 8-7
Prepare journal entries to record the
transactions.
Problem 8-7
Vanity Company financed some of its operations by
assigning accounts receivable to a bank in consideration for
a loan.
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
August 1 The entity received a statement that the bank had
collected P420,000 of the assigned accounts
Problem 8-7
Vanity Company financed some of its operations by
assigning accounts receivable to a bank in consideration for
a loan.
September The entity received a second statement from the
1 bank, together with a check for the amount due.
The statement indicated that the bank had
collected P320,000 of the assigned accounts.
Problem 8-7
July 1 Accounts receivable-assigned 800,000
Accounts receivable 800,000

Cash(640k-24,000) 616,000
Service charge (3%x800,000) 24,000
Note payable-bank 640,000
August 1 Interest expense (1%x640,000) 6,400
Note payable-bank 413,600
Accounts receivable-assigned 420,000
Problem 8-7
Vanity Company financed some of its operations by
assigning accounts receivable to a bank in consideration for
a loan.
September Cash 91,336
1 Interest expense 2,264
Note payable-bank 226,400
Account receivable-assigned 320,000

Accounts receivable 60,000

Accounts receivable assigned 60,000
Problem 8-7
Vanity Company financed some of its operations by
assigning accounts receivable to a bank in consideration for
a loan.
September Bank loan 640,000
1 August 1 payment 413,600
Balance 226,400

Collections by bank 320,000

less: payment of loan 226,400
Interest(1%x226,400) 2,264 228,664
Reimittance from bank 91,336
Problem 8-13
On December 1, 2022, Bamboo 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.
Problem 8-13
In addition to the interest on the note, the bank
also charged a 5% finance fee deducted in
advance on the face amount of the note
payable.

The December collections of assigned accounts

receivable amounted to P2,000,000 less cash
discount of P100,000.
Problem 8-13
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
Problem 8-13
1. What amount of cash was received from the
assignment of accounts receivable on December 1,
2022?

2. What is the carrying amount of note payable on

December 31, 2022?

3. What amount should be disclosed as the equity of

Bamboo Company in assigned accounts on
December 31, 2022?
Problem 8-13
Note payable 3,000,000
Finance fee (5% x 3,000,000) (150,000)
Cash received 2,850,000

Note payable 3,000,000

Principal payment:
Remittance 1,900,000
Interest (30,000) 1,870,000
(3M x 12% x 1/12)
Note payable- December 31 1,130,000
Problem 8-13
Accounts receivable- 4,000,000
assigned
Collections (1,900,000)
Sales discounts (100,000)
Sales returns (150,000)
Accounts written off (200,000)
Balance of accounts assigned 1,650,000
Note payable (1,130,000)
Equity in assigned accounts 520,000
Problem 8-14
Brawny Company factored P8,000,000 of accounts
receivable to a finance entity at the beginning of the
current year. Control was surrendered by Brawny
Company.

The factor assessed a fee of 5% and retained a holdback

equal to a 10% of the accounts receivable.

In addition, the factor charged 15% interest computed on a

weighted average time to maturity of the accounts
receivable of 30 days.
Problem 8-14

1. What amount was initially received by

Brawny Company from the factoring?

2. Assuming all accounts receivable are

collected, what is the loss on factoring?
Problem 8-14

Accounts receivable factored 8,000,000

Finance charge (5% x 400,000
8,000,0000)
Holdback (10% x 8,000,000) 800.000
Interest (8,000,000 x 15% x 98,630
30/365)
Cash initially received by 6,701,370
Brawny Company
Problem 8-14

Accounts receivable factored 8,000,000

Finance charge (5% x 400,000
8,000,0000)
Holdback (10% x 8,000,000) 800.000
Interest (8,000,000 x 15% x 24,658
30/365)
Cash initially received by 6,701,370
Brawny Company
Problem 8-17
Daisy 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 of P200,000 for these accounts.

By year-end , the entity had collected the factor’s holdbank

there being no customer returns and other adjustments.
Problem 8-17

1. What amount of cash was initially received

from factoring?

2. What amount should be recognized as loss on

factoring?
Problem 8-17
Accounts receivable 6,000,000
Factor’s holdback (10% (600,000)
x 6,000,000)
Commission (15% x (900,000)
6,000,000)
Cash received 4,500,000
Problem 8-17
Accounts receivable 6,000,000
factored
Commission (900,000)
Net sale price 5,100,000
Carrying amount of AR 5,800,000
(6M-200k)
Loss on factoring (700,000)
Problem 8-18
Zeus Company factored P6,000,000 of accounts
receivable to a finance entity at the beginning
of current year. Control was surrendered by
Zeus Company.

The factor accepted the accounts receivable

subject to recourse for nonpayment. The fair
value of the recourse obligation is P100,000.
Problem 8-18
The factor assessed a fee of 3% and retain a
holdback equal to a 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.
Problem 8-18

1. What amount of cash was initially received

from the factoring?

2. If all accounts are collected, what amount

should be recognized as loss on factoring the
accounts receivable?
Problem 8-18

3. If all accounts are not collected, what amount

should be recognized as loss on factoring?
Problem 8-18
Accounts receivable 6,000,000
Factor’s holdback (6M (300,000)
x 5%)
Factoring fee (6M x 3%) (180,000)
Interest (6M x 15% x (133,150)
54/365)
Cash initially received 5,386,850
from factoring
Problem 8-18
Factoring Fee 180,000
Interest 133,150
Total cost of factoring 313,150
Problem 8-18
Factoring Fee 180,000
Interest 133,150
Recourse obligation 100,000
Loss on factoring 413,150
Problem 9-9
On July 1, 2022, Lee Company sold goods in
exchange for P2,000,000, 8 month, non-
interest bearing note receivable.

At the time of the sale, the note’s market rate

of interest was 12%. The note was discounted
at 10% on September 1, 2022.
Problem 9-9

1. What amount was received from the note

receivable discounting?

2. What amount should be reported as loss on

note receivable discounting?
Problem 9-9
Principal 2,000,000
Less: Discount (2M x 100,000
10% x 6/12)
Net proceeds 1,900,000

Loss on factoring 100,000

Problem 9-9

1. What amount was received from the note

receivable discounting?

2. What amount should be reported as loss on

note receivable discounting?
Problem 9-14
April 1, 2022 Shalimar Company discounted with
recourse a 9-month, 10% note dated
January 1, 2022 with face amount of
6,000,000. The bank discount rate is
12%.

The discounting transaction is

accounted for as a conditional sale
with recognition of contingent
liability.
Problem 9-14
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.
December 31, The entity collected the dishonored
2022 note receivable in full plus 12%
annual interest on the total amount
due.
Problem 9-14
1. What amount was received from the note
receivable discounting on April 1, 2022?

2. What amount should be recognized as loss on

note receivable discounting?

3. What total amount was collected from the

customer on December 31, 2022?
Problem 9-14
4. If the discounting is secured borrowing, what
is included in the journal entry to record the
transaction?
A. Debit loss on note receivable discounting
P87,000.
B. Debit interest expense P87,000.
C. Credit liability for note discounted
P6,063,000.
D. Credit interest income P63,000.
Problem 9-14
1. 6,063,000
2. 87,000
3. 6,695,000
4. Debit interest expense