Receivable Financing PDF

Preview

Summary

Part II. Problems On July 1, 2019, Jon Snow Company sold equipment to Arya Stark Company for P1,000,000. Jon Snow accepted a 10% note receivable for the entire sales price. This note payable in two equal installments of P500,000 plus accrued interest on December 31, 2019 and December 31, 2020. On Ju...

Description

Part II. Problems 26. On July 1, 2019, Jon Snow Company sold equipment to Arya Stark Company for P1,000,000. Jon Snow accepted a 10% note receivable for the entire sales price. This note payable in two equal installments of P500,000 plus accrued interest on December 31, 2019 and December 31, 2020. On July 1, 2020, the entity discounted the note at a bank at an interest rate of 12%. What is the amount received from the discounting of note receivable? A. 484,000 B. 493,500

C. 503,500 D. 517,000

Sol: Principal 500,000 Add: Interest (500,000 x 10%) 50,000 Maturity Value 550,000 Less: Discount (550,000 x 12% x 6/12) 33,000 517,000 Net Proceeds 27. Pledge Company accepted from a customer P1,000,000 face amount, 6-month, 8% note dated April 15, 2019. On the same date, the entity discounted the note without recourse at Union Bank at a 10% discount rate. What amount of cash received from the discounting? A. 1,040,000

C.

988,000

B.

D.

972,000

990,000

Sol: Principal 1,000,000 Add: Interest (1,000,000 x 8% x 6/12) Maturity Value 1,040,000 Less: Discount (1,040,000 x 10% x 6/12) 988,000 Net Proceeds

40,000 52,000

23.Using the information in number 2, what is the loss on note receivable discounting? A. 50,000

C. 52,000

B. 40,000

D. 12,000

Sol: Net Proceeds 988,000 Carrying amount of note receivable – equal to principal (1,000,000) ( 12,000 ) Loss on note receivable discounting 24. On June 30, 2019, Tyrion Company discounted at the bank a customer’s P6,000,000, 6month, 10% note receivable dated April 30, 2019.The bank discounted the note at 12% without recourse. What is the loss on note receivable discounting? A. 252,000

C. 52,000

B. 152,000

D. 48,000

Sol: Principal 6,000,000 Add: Interest (6,000,000 x 10% x 6/12) Maturity Value 6,300,000 Less: Discount (6,300,000 x 12% x 4/12) Net Proceeds 6,048,000

300,000 252,000

Principal 6,000,000 Accrued Interest (6,000,000 x 10% x 2/12) 100,000 Carrying amount of note receivable 6,100,000 Net Proceeds 6,048,000 CA of Note Receivable (6,100,000) ( 52,000 Loss on Note Receivable discounting

25. Ingrid Company received from a customer a one-year, P500,000 note bearing annual interest of 8%. After holding the note for 6 months, the entity discounted the note without recourse at 10%. What amount of cash was received from the bank? a. 540,000 c. 513,000 b. 523,810 d. 495,238 Sol: Principal 500,000 Add: Interest (500,000 x 8%) 40,000 Maturity Value 540,000 Less: Discount (540,000 x 10% x 6/12) 27,000 Net Proceeds 513,000 26. Based on the information above, what is the loss on note receivable discounting? A. 27,000 C. 12,000 B. 20,000 D. 7,000 Sol: Principal 500,000 Accrued interest receivable (500,000 x 8% x 6/12) 20,000 Carrying amount of note receivable 520,000 Net Proceeds 513,000 Carrying amount of note receivable Loss on note receivable discounting

(520,000) ( 7,000 )

27. On July 1, 2019, Podrick Company sold goods in exchange for P2,000,000, 8-month, noninterest-bearing note receivable. At the time of the sale, the market rate of interest was 12%. The entity discounted the note at 10% on September 1, 2019. What is the cash received from discounting? A. 1,940,000 C. 1,900,000 B. 1,938,000 D. 1,880,000 Sol: Principal – Maturity Value 2,000,000 Less: Discount (2,000,000 x 10% x 6/12) 100,000 1,900,000 Net Proceeds

28. Sansa Stark Company discounted its own P5,000,000 one-year note at a discount rate of 12%, when the prime rate was 10%. In reporting the note prior to maturity, what rate should be used for the recording of interest expense? A. 12.6% C. 12.0% B. 10.7% D. 13.6% Sol: Note payable 5,000,0000 Discount (5,000,000 x 12%) ( 600,000 ) Net Proceeds 4,400,000 Effective Interest Rate = Discount / Net Proceeds

= 600,000 / 4,400,000 = 13.6% 29. On August 31, 2019, Blackwater Company discounted with recourse a customer’s note at the bank at discount rate of 15%. The note was received from the customer on August 1, 2019, is for 90 days, has a face value of P5,000,000, and carries an interest rate of 12%. The customer paid the note to the bank on October 30, 2013, the date of maturity. If the discounting is accounted for as a secured borrowing, what is the interest expense to be recognized on August 31, 2019? A. 50,000 C. 28,750 B. 21,250 D. 25,000 Sol: Principal 5,000,000 Interest (5,000,000 x 12% x 90/360) 150,000 Maturity Value 5,150,000 Discount (5,150,000 x 15% x 60/360) 128,750 Net Proceeds 5,021,250 Principal 5,000,000 Accrued Interest Receivable (5,000,000 x 12% x 30/360) 50,000 Carrying amount of note receivable 5,050,000 Net Proceeds Carrying amount of note receivable Interest Expense

5,021,250 (5,050,000) ( 28,750 )

30. On November 1, 2019, Cersei Company discounted with recourse at 10% a one-year, noninterest bearing, P2,050,000 note receivable maturing on January 31, 2020. The discounting of the note receivable is accounted for as a conditional sale with recognition of a contingent liability. What is the amount of contingent liability for this note must be disclosed in the financial statements for the year ended December 31, 2019? A. 2,050,000 C. 2,033,333 B. 2,000,000 D. 0 The contingent liability is equal to the principal or face value of the note receivable discounted. 31. On December 1, 2019, Hero Company assigned P4000,000 of accounts receivable to Halo Company as a security for a loan of P335,000. Hero Company charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During December, Hero collected P110,000 on assigned accounts after deducting P380 of discounts. Hero accepted returns worth P1,350 and wrote off assigned accounts totaling P2,980. How much cash did Hero receive from Halo at the time of the transfer? A. 301,500 C. 328,300 B. 327,000 D. 335,000

Sol: Loan Value 335,000 Less: Commission expense (335,000 x 2%) Cash Received 328,300

6,700

32. Using the information on number 11, what is the carrying value of the accounts receivable assigned as of December 31, 2019? A. NONE C. 289,620 B. 285,290 D. 290,000 Sol: Account Receivable Assigned P400,000 Less: Amount Collected (110,000 + 380) P 110,380 Sales Return 1,350 Write-off 2,980 114,710 P285,290 Carrying value of account receivable assigned 33. On December 1, 2019, M2M Company assigned on a non-notification basis accounts receivable of P3,000,000 to a bank in consideration for a loan of 80% of the receivables less a 5% service fee on the accounts assigned. The interest rate of the loan is 12% per annum. The company collected assigned accounts of P2,000,000 and remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The interest rate is 1% per month on the outstanding balance of the loan. In its December 31, 2019 statement of financial position, what amount of note payable should M2M report as current liability? A. 400,000 C. 424,000 B. NONE D. 1,024,000 Sol: Total loan (P3,000,000 x 80%) P2,400,000 Less: Principal Payment Total Payment P2,000,000 Less: Payment for interest (P2,400,000 x 1%) 24,000 1,976,000 Note Payable Balance 424,000

34. On October 31, 2011, Yellow Company engaged to the following transactions:  Obtained a P500,000, six-month loan from City Bank, discounted at 12%. The company pledged P500,000 of accounts receivable as security for the loan.  Factored P1,000,000 of accounts receivable without recourse on a nonnotification basis with Crush Company. Crush charged a factoring fee of 2% of the amount of receivables factored and withheld 10% of the amount factored. What is the total cash received from the financing of receivables? A. 1,320,000 C. 1,380,000 B. 1,350,000 D. 1,470,000

Sol: Pledging [500,000 – (500,000 x 12% x 6/12)] Factoring [1,000,000(100% - 2% - 10%)] 1,350,000 Total Proceeds

470,000 880,000

35. On February 1, 2019, Lara Jean Corporation factored receivables with a carrying amount of P2,000,000 to Peter Kavinsky Corporation. Lara Jean Corporation assesses a finance charge of 3% of the receivables and retains 5% of the receivables. If the factoring is treated as a sale, what amount of loss from sale should the company report in its 2019 Statement of Comprehensive Income for the year 2019? A. none C. 100,000 B. 60,000 D. 160,000 Sol: Amount factored P2,000,000 Less: Finance Charge (2,000,000 x 3%) P60,000 Holdback (2,000,000 x 5%) 100,000 160,000 Amount Received P1,840,000 Add: New asset received (holdback) 100,000 Total Consideration received P1,940,000 Less: Carrying Value of the receivable equal to the face 2,000,000 Loss on Factoring P 60,000 36. Dos Lang Po Company factored 750,000 of accounts receivable to Pasado Company on December 1, 2019. Dos Lang Po Company retained significant amount risks and rewards of ownership and continues to manage the financial asset. Pasado Company accepted the receivable, assigned a fee of 2% and retains a holdback equal to 4% of the accounts receivable. In addition, Pasado Company charged 12% interest on the amount advanced. What amount of finance cost should Dos Lang Po Company report in its December2019 Statement of Comprehensive Income related to the factoring of its accounts receivable? A. 22,220 C. 15,000 D. 22,200 B. 7,200 Sol: Interest Cost (750,000 x 96% x 12% x 30/360) 7,200 Service Charge (750,000 x 2%) 15,000 22,200 Total Finance Cost

37. Road To Cut-off Company sold P5,800,000 in accounts receivable for cash of P5,000,000. The factor withheld 10% of the cash proceeds to allow for possible customer returns and other adjustments. An allowance for bad debts of 600,000 had previously been established by the entity in relation to these accounts. What is the loss on factoring that should be recognized?

A. 200,000 C. 800,000 B. 500,000 D. 700,000 Sol: Sales Price 5,000,000 Carrying amount of accounts receivable (5,800,000 – 600,000) ( 200,000) Loss on Factoring

5,200,000

38. Marupok Company factored P4,000,000 of accounts receivable without guarantee for a finance charge of 5%. The finance entity retained an amount equal to 10% of the accounts receivable for possible adjustments. What amount should be recorded as gain or loss on the transfer of accounts receivable? A. 200,000 gain C. 600,000 loss B. 200,000 loss D. 0 Sol: Loss on Factoring – equal to finance fee (5% x 4,000,000) 200,000 39. Payaman Company factored without recourse P2,000,000 of accounts receivable with a bank. The finance charged is 3% and 5% was retained to cover sales discounts, sales returns and sales allowances. What amount of cash was received on the sale of accounts receivable? A. 1,940,000 C. 1,840,000 B. 1,900,000 D. 2,000,000 Sol: Accounts Receivable 2,000,000 Finance Charge (3% x 2,000,000) ( 60,000) Factor’s holdback (5% x 2,000,000) (100,000) Cash Received from Factoring 1,840,000

40. Pikachu Company assigned P4,000,000 of accounts receivable as collateral for a P2,000,000 6% loan with a bank. The entity also paid a finance fee of 5% on the transaction upfront. What amount should be recorded as a gain or loss on the transfer of accounts receivable? A. 200,000 loss C. 240,000 gain B. 200,000 gain D. 0 Sol: No gain or loss is recognized because assignment of accounts receivable is a secured borrowing and not a sale. 41. On December 1, 2019, Choi Company assigned specific accounts receivable totaling P2,000,000 as collateral on a P1,500,000, 12% note from a certain bank. The entity will continue to collect the assigned accounts receivable. In addition to the interest on the note, the bank also charged a 5% finance fee deducted in advance on the P1,500,000 value of the note. The December collections of assigned accounts receivable amounted to

P1,000,000 less cash discounts of P50,000. On December 31, 2019, the entity remitted the collections to the bank in payment for the interest accrued on December 31, 2019 and the note payable. What is the carrying amount of note payable on December 31, 2019? A. 500,000 C. 565,000 B. 550,000 D. 730,000 Sol: Note Payable 1,500,000 Principal Payment: Remittance 950,000 Interest (1,500,000 x 12% x 1/12) (15,000) 935,000 565,000 Note Payable – December 31 42. Using the information above, what amount should be disclosed as the equity of Choi Company in assigned accounts on Dec. 31, 2019? A. 500,000 C. 435,000 B. 450,000 D. 270,000 Sol: Accounts Receivable – assigned (2,000,000 – 1,000,000) 1,000,000 Note Payable (565,000) 435,000 Equity of Choi Company in assigned accounts

43. ABA Co. factored P60,000 accounts receivable to CAB Financing Corp. on a without recourse basis on January 1, 2020. CAB charged a 4% service fee and retained a 10% holdback to cover expected sales returns. In addition, CAB charged a 12% interest computed on a weighted average time to maturity of the receivables of 73 days based on 365 days. How much proceeds is received from the factoring on January 1, 2020? A. 50,130 C. 50,160 B. 50,610 D.51,610 Sol: Account Receivable factored 60,000 Service Charge (60,000 x 4%) (2,400) Factor’s holdback (60,000 x 10%) (6,000) Interest Charge (60,000 x 12% x 73/365) (1,440) Proceeds from factoring 50,160 44. Based on the information in number 23, how much is the cost of factoring? A. 4,830 C. 4,820 D. 3,840 B. 3,040 Sol: Service Charge 2,400 Interest Expense 1,440 Cost of Factoring3,840 50. Miley Co. factored P5,000,000 of its accounts receivable. The transfer is recorded as

a sale by Miley Co. The factor retained 8% for sales and adjustments and charged P300,000 as a financing fee. For simplicity, the estimated and actual amounts of the following items are equal: Sales adjustments 250,000 Uncollectible Accounts 100,000 What is the loss or financing expense to be recognized on the transfer? A. 300,000 C. 350,000 B. 650,000 D. 400,000 Sol: Loss on Factoring – finance fee 300,000...