QUIZ-DRILL # 2

Philippine Bank granted a loan to a borrower on January 1,2014. The interest on the loan is 8%
payable annually starting December 31,2014. The loan matures in three years on December 31,2016.
The data related to the loan are:
Principal amount 3,000,000
Origination fee charged against the borrower 100,000
Direct origination cost incurred 260,300
After considering the origination fee charged to the borrower and the direct origination cost incurred,
the effective rate on the loan is 6%.
1. What is the carrying amount of the loan receivable on January 1, 2014?
A. 2,900,000 C. 3,160,300
B. 3,000,000 D. 3,260,300

2. What is the interest income for 2014?

A. 180,000 C. 240,000
B. 189,618 D. 252,824

3. What is the carrying amount of the loan receivable on December 31, 2014?
A. 3,000,000 C. 3,160,300
B. 3,109,918 D. 3,210,682

4. What is the interest income for 2015?

A. 180,000 C. 240,000
B. 186,595 D. 248,793

5. A 90-day, 15 percent interest-bearing note receivable was immediately discounted at a bank at

12 percent. The proceeds received from the bank upon discounting would be the
a. maturity value less the discount at 15 percent.

b. maturity value less the discount at 12 percent.

c. face value less the discount at 15 percent.

d. face value less the discount at 12 percent.

6. The balance in Accounts Receivable is not reduced in recording which of the following types of
financing arrangements?
a. Assignment of specific accounts receivable

b. General assignment (pledge) of accounts receivable

c. Factoring of accounts receivable

d. Transfer of accounts receivable without recourse

7. When the accounts receivable of a company are sold outright to a company that normally buys
accounts receivable of other companies without recourse, the accounts receivable have been
a. transferred with recourse.
b. factored.

c. assigned.

d. pledged.

Use the following information for the next two questions:

Jason Co. assigned ₱1,000,000 of accounts receivable to Easy Finance Co. as security for a loan of
₱840,000. Easy charged a 2% commission on the amount of the loan; the interest rate on the note
was 10%. During the first month, Jason collected ₱220,000 on the assigned accounts after deducting
₱760 of discounts. Jason accepted returns worth ₱2,700 and wrote off assigned accounts totaling
₱7,400.

8.The amount of cash Jason received from Easy at the time of the transfer was
a. ₱756,000. c. ₱823,200.

b. ₱820,000. d. ₱840,000.

9.Entries during the first month would include a

a. debit to Cash of ₱220,760.

b. debit to Bad Debt Expense of ₱7,400.

c. debit to Allowance for Doubtful Accounts of ₱7,400.

d. debit to Accounts Receivable of ₱230,860.

Use the following information for the next two questions:

On February 1, 2004, Norton Company factored receivables with a carrying amount of ₱500,000 to
Koch Company. Koch Company assessed a finance charge of 3% of the receivables and retains 5%
of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be
reported in the income statement of Norton Company for February.

10. Assume that Norton factors the receivables on a without recourse basis. The loss to be reported
is
a. ₱0. c. ₱25,000.
b. ₱15,000. d. ₱40,000.
11. Assume that Norton factors the receivables on a with recourse basis. The recourse obligation
has a fair value of ₱2,500. The loss to be reported is
a. ₱15,000. c. ₱25,000.
b. ₱17,500. d. ₱42,500.

12. On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as
collateral on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts
receivable. Pacific also assesses a 2 percent service charge on the total accounts receivable
assigned. Riva Co. is to make monthly payments to Pacific with cash collected on assigned
accounts receivable. Collections of assigned accounts during September totaled ₱260,000 less
cash discounts of ₱3,500. What were the proceeds from the assignment of Riva's accounts
receivable on September 1?
a. ₱610,000

b. ₱612,500

13. On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as
collateral on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts
receivable. Pacific also assesses a 2 percent service charge on the total accounts receivable
assigned. Riva Co. is to make monthly payments to Pacific with cash collected on assigned
accounts receivable. Collections of assigned accounts during September totaled ₱260,000 less
cash discounts of ₱3,500. What amount is owed to Pacific by Riva Co. for September collections
plus accrued interest on the note to September 30?
a. ₱260,000

b. ₱262,750

c. ₱264,000

d. ₱266,250

14. Simpson Company held a ₱6,000, 3-month, 15 percent note. One month before maturity, it
discounted the note at 10 percent at a local bank. Approximately how much net income did
Simpson earn on the note?
a. ₱173

b. ₱52

c. ₱225

d. ₱60

15. If a 3-month non-interest-bearing note receivable of ₱10,000 is discounted at a bank at 10

percent, how much cash is received?
a. ₱10

b. ₱1,010
c. ₱999

d. ₱9,750

- Ride the high waves. -

 /map 😊