Various Notes Receivable Transactions

The Notes Receivable account of Bunsoy Co. has a debit balance of P239,200 on December 31, 2018.
There was no balance at the beginning of the year. Your analysis on the account reveals the following:

1. Notes amounting to P845,000 were received from customer during the year.

2. Notes of P416, 000 were collected on due dates and notes amounting to P221,000 were discounted at
the Agressive Bank. The notes receivable account was credited for the notes discounted.

3. Of the P221,000 notes discounted, P104,000 was paid on maturity date while a note for P31,200 was
dishonered and was charged back to Notes Receivable account.

4. Cash of P33,000 was received as partial payment on notes not yet due. The amount received was
credited to Liability on Partial Payments account.

5. A note for P50,000 was pledge as collateral for a bank loan.

6. Included in the company's cash account balance is three month note from an officer amounting to
P8,000 which is over a month due.

Assuming that Bunsoy Co. will use a notes discounted account, the adjusted balance of the Notes
Receivable account on December 31, 2018, is

A. P260,800

B. P323,200

C. 364,800

D. 175,000

SOLUTION
Unadjusted Balance

(P845,00 - P416,000 - P221,000 + 31,200) P239,200

Partial collection recorded as liability (P33,000)

Notes Receivable discounted still outstanding

(P221,000 - P104, 000 - 31,200) P85,800

Dishonered Notes (P31,200)

Adjusted Balance P260,800

Discounting of Notes Receivable

During your audit of Forever Company for the year ended of December 31, 2018, you find the following
account

NOTES RECEIVABLE

Date DEBIT CREDIT

Sept 1 Cornea, 20% due in 3 months P 80,000

Oct 1 Hunk Co., 24% due in 2 months 300,000

1 Discounted Cornea note at 25% P 80,000

Nov 1 Valerie, 24% due in 13 months 600,000

30 Cellular Co., no interest due in

one year 500,000

30 Discounted Cellular note at 18% 500,000

Dec 1 Tictic, 18% due in 5 months 900,000

1 O. Reyes, President, 12%

due in 3 months

(for cash loan given to O. Reyes) 1,200,000

All notes are trade notes unless otherwise specified. The Cornea note was paid on December 1 as per
notification received from the bank. The Hunk Co. note was dishonored on the due date but the legal
department has assured the management of its full collectibility. The company, with your concurrence
will treat the discounting as a conditional sale of notes receivable.

1. At what amount on the current assets section of the December 31, 2018, statement of financial
position will the Notes Receivable-trade be carried
A. P1,500,000

B. P1,800,000

C. P2,400,000

D. P2,080,000

2. What amount of loss on notes receivable discounting should be reported in the 2018 income
statement of the company?

A. P90,500

B. P90,833

C. P90,000

D. 0

3. Based on the ledger account presented, what amount of interest income should be accrued at
December 31, 2018

A. P55,500

B. P61,500

C. P49,500

D. 67,500

1. Valerie P 600,000

Tictic 900,000

Total notes receivable trade, December 31, 2018 P 1,500,000

2. Net Proceeds:

Principal P 80,000

Interest (P80,000 x 20% x 3/12) 4,000

Maturity Value 84,000

Discount (P84,000 x 25% x 2/12) (3500) P 80,500

Book Value:

Principal P 80,000

Accrued interest receivable

(P80,000 x 20% x 1/2) 1,333 81,333

Loss on discounting of Cornea notes P 833

Principal/Maturity Value P 500,000

Discount (P500,000 x 18% x 1 year) (90,000)

Net Proceeds 410,000

Book Value 500,000

Loss on Discounting of

Cellular note P 90,000

Total Loss on Discounting (833+ 90,000) P 90,833

3. Hunk (300,000 x 24% x 3/12) P18,000

Valerie (600,000 x 24% x 2/12) 24,000

Tictic (900,000 x 18% x 1/12) 13,500

O. Reyes (P1,200,000 x 12% x 1/12) 12,000

Total acrued interest receivable, December 31, 2018 P67,500