INTERMEDIATE ACCOUNTING 1 ALVAREZ / PEDROS

RECEIVABLES (PART 3)

I. PLEDGING OF ACCOUNTS RECEIVABLES

1. On January 1, 2024, Berlin Company borrowed P2,000,000 from the bank. The loan matures on
December 31, 2024 and bears 12% interest. To persuade the bank to lend the Company in the first
place, the Company pledged all its accounts receivable with carrying amount of P4,500,000.

Requirement: Prepare entries to record the barrowing transaction and payment of loan and related
interest.

II. ASSIGNMENT OF ACCOUNTS RECEIVABLES

2. Oslo Company assigned P5,000,000 of its accounts receivable on June 1, 2024. The bank lent 80%
of the accounts receivable and charged P10,000 service fee. The loan will mature after one year
together with 12% interest.

The following are the transactions for the month of June 2024:
a. June 10, 2024 - P1,500,000 assigned accounts were received less P20,000 sales discount. In
addition, P900,000 unassigned accounts were received.
b. June 15, 2024 – P50,000 assigned accounts were written-off.
c. June 22, 2024 – P100,000 assigned accounts were issued with credit memo due to returns.

Requirements:
1. Prepare journal entries under both notification and non-notification basis.
2. How much was the net proceeds from the assignment?
3. What is the balance of Accounts Receivable – Assigned as of June 30, 2024?
4. Compute for equity over the assigned accounts on June 30, 2024

3. On November 1, of the current year, Tokyo Company assigned customers' accounts in the amount
of P1,000,000 to Rio Company as security for a loan in the amount of P750,000 and a stated interest
rate of 10%. Rio Company charges 5% in relation to the amount borrowed. Tokyo Company will
continue to collect the accounts from customers and will remit payment to Rio Company.

On November 15, of the current year, cash collections on the assigned accounts amounted to
P430,000 net of sales discounts of P20,000. Also on November 30, P20,000 assigned accounts were
issued with credit memo due to returns.

On December 1, assigned accounts of P20,000 proved to be worthless. At the end of the year, Tokyo
Company remitted in full the amount collected plus interest due on the outstanding balance of the
loan.

Requirements:
1. Compute for the cash received from assignment.
2. Prepared the journal entries in relation to the assignment of accounts receivable
3. What is the balance of Accounts Receivable – Assigned as of December 31?
4. Compute for equity over the assigned accounts to be disclosed on December 31

4. Oslo Company finances some of its current operations by assigning accounts receivable on a
notification basis to Helsinki Finance. On July 1 of the current year, it assigned, under guarantee,
specific accounts amounting to P4,000,000. Helsinki Finance shall advance to Oslo Company 80% of
the accounts assigned, less a finance charge of 2% of the total accounts assigned.

On August 1, Oslo Company received a statement that Helsinki had collected P2,200,000 of these
accounts and had made an additional charge of 1% of the total outstanding payable as of July 31. This

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charge is to be deducted at the time of the first remittance due to Oslo Company from the Helsinki
Finance.

On September 1, Oslo Company received a second statement from Helsinki Finance, together with a
check for the amount due. The statement indicated that the Helsinki had collected an additional of
P1,500,000 and had made a further charge of 1% of the balance outstanding as of August 31.

Requirements:
1. Compute for the cash received from assignment.
2. Prepare the entries in relation to the assignment of the accounts receivable.

III. FACTORING OF ACCOUNTS RECEIVABLES

5. Denver Company factored P500,000 of its accounts receivable to Bagota Company for P450,000.
An allowance for bad debts equal to P30,000 was previously established for the account factored.
Bagota Company withheld 5% of the purchase price as protection against sales returns and
allowance.
Case No. 1: Sale of receivable is without recourse.
Case No. 2: Sale of receivable is with recourse and the recourse obligation has an estimated fair value
of P5,000.

Requirements:
For each of the above cases, determine the following:
1. Cash received
2. Cost of factoring
3. Journal entry to record the transaction

6. Marsella Company factored P800,000 of its accounts receivable to Sagasta Company on October 1.
Control was surrendered by Marsella Company. The factor assessed a fee of 3% and retained a
holdback equal to 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. (Use 365
days in the computation of the interest)

Requirements:
1. What is the amount of cash initially received by Marsella Company from the factoring?
2. If all accounts are collected, what is the cost of factoring the accounts receivable?

IV. DISCOUNTING OF NOTES RECEIVABLES

7. On January 16, Arturo Co. accepted a P1,200,000, 10%, 90 day note from a customer. On February
15, the note was discounted at 12%. At maturity date, the note was dishonored and the bank charged
a P5,500 protest fee.

Requirements:
Prepare all the necessary entries assuming the notes receivable was
1. Discounted without recourse
2. Discounted with recourse
a. Conditional sale recognizing contingent liability
b. Secured borrowing

8. On January 1, 2024, Manila Company sold land with carrying amount of P1,500,000 in exchange
for a 9-month, 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, 2024, the entity discounted the note with recourse. The bank discount rate is 12%. The
discounting transaction is accounted for as a secured borrowing.

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On October 1, 2024, the maker dishonored the note receivable. The entity paid the bank the maturity
value of the note plus protest fee of P 10,000.

On December 31, 2024, the entity collected the dishonored a note in full plus 12% annual interest on
the total amount due.

Requirements:
1. What is the amount received from the discounting of note receivable?
2. What is the interest expense to be recognized on April 1, 2024?
3. What is the amount collected from the customer on December 31, 2024?

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