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Receivable Financing

The document provides information on four different companies - Twin Company, Gem Company, Andrei Company, and Marco Company - and their transactions involving accounts receivable and notes receivable. Journal entries are presented to record the transactions of each company, including assigning and collecting accounts receivable, factoring accounts receivable, discounting notes receivable with and without recourse, and the customer payments on the receivables.

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Aphol Joyce Mortel
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3K views5 pages

Receivable Financing

The document provides information on four different companies - Twin Company, Gem Company, Andrei Company, and Marco Company - and their transactions involving accounts receivable and notes receivable. Journal entries are presented to record the transactions of each company, including assigning and collecting accounts receivable, factoring accounts receivable, discounting notes receivable with and without recourse, and the customer payments on the receivables.

Uploaded by

Aphol Joyce Mortel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Twin Company Transactions: Details the financial transactions and journal entries assigned to Twin Company, including accounts receivable and note payable processes.
  • Gem Company Transactions: Analyzes Gem Company's transactions for the year including merchandise sales and associated journal entries.
  • Andrei Company Transactions: Discusses the financial transactions carried out by Andrei Company such as merchandise sales and corresponding interest handling.
  • Marco Company Discounted Transactions: Covers Marco Company's discounted transactions involving customer's notes at the bank and the calculation of interests and carrying amounts.

I.

Twin Company provided the following Information:

Dec. 1 Assigned P1,500,000 of accounts receivable to a bank on a nonnotification basis in


consideration for a loan. The bank advanced P1,300,000 less a service charge of P50,000. The
entity signed a promissory note bearing interest of 1% per month on the unpaid loan balance.

31 Collected assigned accounts of P1,000,000 less sales discount of P30,000

31 Remitted the collection to the bank in payment first for the interest and the balance to the
principal

Required: (10points)

a. Prepare the journal entries to record the transactions


b. Indicate the classification and disclosure of the accounts related to the assignment on
December31.

JOURNAL ENTRIES

Dec 1 Account Receivable assigned P1,500,000


Account Receivable P1,500,000

1 Cash 1,250,000
Service charge 50,000
Note Payable – bank 1,300,000

31 Cash 970,000
Sales discount 30,000
Account Receivable assigned 1,000.000

31 Interest (P1,300,000 x 1%) 13,000


Note Payable – bank 957,000
Cash 970,000

*The balance of discounts receivable assigned of P500,000 should be classified as current


asset and include in trade and other receivables line item.

*The balance of Note Payable – bank of P343,000 should e classified and presented as current
liability

Moreover, the company disclose the equity in assigned account as follows:


Account Receivable – assigned P500,000
Note Payable – bank ( 343,000 )
Equity in assigned accounts P157,000
II. Gem Company provided the following transactions for the current year.

June 1 Sold merchandise to a customer for P500,000, terms 2/10, n/30

3 Factored the account to a bank. The bank charged 5% commission and 25%
Holdback

9 Granted the customer a credit allowance of P50,000 for damage in the shipment

11 The customer paid in full its account to the bank

15 Final settlement was made with the bank

Required: (5points)

Prepare journal entries to record the transactions.

JOURNAL ENTRIES

June 1 Account Receivable P500,000


Sales P500,000

June 3 Cash 340,000


Sales discount (500,000 x 2% ) 10,000
Commission (500,000 x 5%) 25,000
Receivable from factor (500,000 x 25%) 125,000
Account Receivable 500,000

June 9 Sales return and allowances 50,000


Sales discount (50,000 x 2%) 1,000
Receivable from factor 49,000

June 11 NO ENTRY

June 15 Cash (125,000 – 49,000) 76,000


Receivable from factor 76,000
III. Andrei Company provided the following transactions:

Jan. 1 The entity sold merchandise for P500,000 accepting a note for six months
with interest to be paid at maturity at 12%

Mar. 1 The entity discounted the note without recourse at local bank at 15%

July 1 The customer paid the bank in full

Required: (5points)

Prepare journal entries to record the transactions.

JOURNAL ENTRIES

Jan 1 Notes Receivable P500,000


Sales P500,000

Mar 1 Cash 503,500


Loss on Discounting 6,500
Notes Receivable 500,000
Interest Income 10,000

July 1 NO ENTRY
IV. On August 31, 2020, Marco Company discounted with recourse a customer’s note at the
bank at a discount rate of 15%.

The note was received from the customer on August 1, 2020, term 90 days, had a face amount
of P5,000,000, and carried an interest rate of 12%.

The customer paid the note to the bank on October 30, 2020, the date of maturity.

Required: (10 points)

Prepare journal entries related to the discounting of note receivable, assuming the discounting
is accounted for as a.) secured borrowing; b.) conditional borrowing.

ANSWER:

Principal P5,000,000
Interest (5,000,000x15%x60/360) 150,000
Maturity Value 5,150,000
Discount (5,150,000x15%x60/360) ( 128,745 )
Net Proceeds P5,021,255

Principal P5,000,000
Accrued Interest Receivable (5,000,000x12%x30/360) 50,000
Carrying amount of Note Receivable P5,050,000

Net Proceeds P5,021,000


Carrying amount of Note Receivable 5.050,00
Loss on Note Receivable Discounting (28,745)

I. Twin Company provided the following Information: Dec. 1 Assigned P1,500,000 of accounts receivable to a bank on a nonnotif
Account Receivable – assigned P500,000 Note Payable – bank
II. Gem Company provided the following transactions for the current year. June 1 Sold merchandise to a customer for P500,000
III. Andrei Company provided the following transactions: Jan. 1 The entity sold merchandise for P500,000 accepting a note for
IV. On August 31, 2020, Marco Company discounted with recourse a customer’s note at the bank at a discount rate of 15%. The

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