Chapter 8: Receivable Financing (Pledge, Assignment, and Factoring)

Problem 8-2: IDEALIST COMPANY

Requirement 1:
2023
10/01 Cash 3,600,000
Discount on Notes Payable (4,000,000 * 10%) 400,000
Notes Payable – Bank 4,000,000
#
12/31 Interest Expense (400,000 * 3/12) 100,000
Discount on Notes Payable 100,000
#
2024
10/01 Notes Payable – Bank 4,000,000
Cash 4,000,000
#
Interest Expense (400,000 * 9/12) 300,000
Discount on Notes Payable 300,000
Requirement 2:

Current Liabilities:
Note Payable - Bank (Note 3) 4,000,000.00
Discount on Note Payable (300,000.00)
Carrying Amount - 12/31/2023 3,700,000.00

Note 3 - Note Payable - Bank

Accounts Receivable of Php5,000,000 are pledged to secure the bank loan of Php4,000,000.

Problem 8-4: DOCILE COMPANY

07/01 Accounts Receivable – Assigned 1,500,000
Accounts Receivable 1,500,000
#
Cash [(1,500,000 * 75%) – 60,000] 1,065,000
Service Charge (1,500,000 * 4%) 60,000
Note Payable – Bank 1,125,000
#
08/01 Note Payable – Bank 800,000
Accounts Receivable – Assigned 800,000
#
Interest Expense (1,125,000 * 2%) 22,500
Cash 22,500
#
09/01 Cash 168,500
Interest Expense 6,500
Note Payable – Bank 325,000
Accounts Receivable – Assigned 500,000
#
Accounts Receivable 200,000
Accounts Receivable – Assigned 200,000
Supporting Computations:

Collection by Bank 500,000.00

Less: Payment of Loan (1,125,000 - 800,000) 325,000.00
Excess Collection 175,000.00
Less: Interest (325,000 * 2%) 6,500.00
Cash Remittance from Bank 168,500.00

Problem 8-5: GRATEFUL COMPANY

07/01 Accounts Receivable – Assigned 500,000
Accounts Receivable 500,000
#
Cash (400,000 – 10,000) 390,000
Service Charge (500,000 * 2%) 10,000
Note Payable – Bank 400,000
#
08/01 Cash 330,000
Accounts Receivable – Assigned 330,000
#
Interest Expense (400,000 * 1%) 4,000
Note Payable – Bank (330,000 – 4,000) 326,000
Cash 330,000
#
09/01 Cash 170,000
Accounts Receivable – Assigned 170,000
#
Interest Expense [(400,000 – 326,000) * 1%) 740
Note Payable – Bank (400,000 – 326,000) 74,000
Cash 74,740
Problem 8-10: MOTORWAY COMPANY and FREEWAY COMPANY
Requirement 1: Books of Motorway Company
a. Cash 2,250,000
Receivable from Factor 300,000
Allowance for Doubtful Accounts 100,000
Loss on Factoring 350,000
Accounts Receivable 3,000,000
#
b. Cash 250,000
Receivable from Factor 250,000
Requirement 2: Books of Freeway Company
a. Accounts Receivable 3,000,000
Cash 2,250,000
Client’s Retainer 300,000
Commission Income 450,000
#
b. Cash 2,500,000
Accounts Receivable 2,500,000
#
 c. Client’s Retainer 250,000
Cash 250,000
#
d. Doubtful Accounts Expense (500,000 * 4%) 20,000
Allowance for Doubtful Accounts 20,000
Supporting Computations:

December 01
Gross Amount 3,000,000.00
Holdback (3,000,000 * 10%) (300,000.00)
Commission (3,000,000 * 15%) (450,000.00)
Cash Remittance from Bank 2,250,000.00

Sales Price (3,000,000 * 85%) 2,550,000.00

Carrying Amount of Accounts Receivable (3,000,000 - 100,000) 2,900,000.00
Loss on Factoring (350,000.00)

December 31
Accounts Receivable - Factored 3,000,000.00
Collections by Factor 2,500,000.00
Balance - December 31 500,000.00

Receivable from Factor per Book 300,000.00

Required Holdback (500,000 * 10%) 50,000.00
Remittance from Factor 250,000.00

Chapter 9: Receivable Financing (Discounting of Note Receivable)

Problem 9-1: WALLEYE COMPANY
01/01 Notes Receivable 500,000
Sales 500,000
#
03/01 Cash 503,500
Loss on Note Discounting 6,500
Notes Receivable 500,000
Interest Income 10,000
#
07/01 No Entry
Supporting Computations:

Principal 500,000.00
Interest (500,000 * 12% * 6/12) 30,000.00
Maturity Value 530,000.00
Discount (530,000 * 15% * 4/12) 26,500.00
Net Proceeds 503,500.00

Principal 500,000.00
Accrued Interest Receivable (500,000 * 12% * 2/12) 10,000.00
Carrying Amount of Notes Receivable - March 1 510,000.00

Loss on Note Discounting (6,500.00)

Problem 9-7: CHAMELEON COMPANY
Requirement 1: Secured Borrowing
06/01 Notes Receivable 5,000,000
Sales 5,000,000
#
07/01 Notes Receivable 6,000,000
Sales 6,000,000
#
Cash 5,047,000
Interest Expense 3,000
Liability for N/R Discounted 5,000,000
Interest Income 50,000
#
07/16 Cash 6,008,500
Interest Expense 16,500
Liability for N/R Discounted 6,000,000
Interest Income 25,000
#
08/30 Liability for N/R Discounted 6,000,000
Notes Receivable 6,000,000
#
Accounts Receivable 5,170,000
Cash (5,150,000 + 20,000) 5,170,000
#
Liability for N/R Discounted 5,000,000
Notes Receivable 5,000,000
#
12/30 Cash 5,376,800
Accounts Receivable 5,170,000
Interest Income 206,800
(5,170,000 * 12% * 4/12)
Requirement 2: Conditional Sale with Recognition of Contingent Liability
06/01 Notes Receivable 5,000,000
Sales 5,000,000
#
07/01 Notes Receivable 6,000,000
Sales 6,000,000
#
Cash 5,047,000
Loss on Note Discounting 3,000
Notes Receivable Discounted 5,000,000
Interest Income 50,000
#
07/16 Cash 6,008,500
Loss on Note Discounting 16,500
Note Receivable Discounted 6,000,000
Interest Income 25,000
#
08/30 Note Receivable Discounted 6,000,000
Notes Receivable 6,000,000
#
 Accounts Receivable 5,170,000
Cash (5,150,000 + 20,000) 5,170,000
#
Note Receivable Discounted 5,000,000
Notes Receivable 5,000,000
#
12/30 Cash 5,376,800
Accounts Receivable 5,170,000
Interest Income 206,800
(5,170,000 * 12% * 4/12)
Supporting Computations:

July 1
Principal 5,000,000.00
Interest (5,000,000 * 12% * 90/360) 150,000.00
Maturity Value 5,150,000.00
Discount (5,150,000 * 12% * 60/360) 103,000.00
Net Proceeds 5,047,000.00

Principal 5,000,000.00
Accrued Interest Receivable (5,000,000 * 12% * 30/360) 50,000.00
Carrying Amount of Notes Receivable - July 1 5,050,000.00

Interest Expense / Loss on Note Discounting (3,000.00)

July 16
Principal 6,000,000.00
Interest (6,000,000 * 10% * 60/360) 100,000.00
Maturity Value 6,100,000.00
Discount (6,100,000 * 12% * 45/360) 91,500.00
Net Proceeds 6,008,500.00

Principal 6,000,000.00
Accrued Interest Receivable (6,000,000 * 10% * 15/360) 25,000.00
Carrying Amount of Notes Receivable - July 16 6,025,000.00

Interest Expense / Loss on Note Discounting (16,500.00)

Chapter 10: Inventories

Problem 10-1: SUMMER COMPANY
Requirement 1:
Periodic Inventory System
a. Purchases (800 * 1,000) 800,000
Accounts Payable 800,000
#
b. Accounts Payable 50,000
Purchase Returns and Allowances (50 * 1,000) 50,000
#
 c. Accounts Payable 600,000
Cash (600 * 1,000) 600,000
#
d. Accounts Receivable 1,580,000
Sales 1,580,000
#
e. Sales Returns and Allowances (20 * 2,000) 40,000
Accounts Receivable 40,000
#
f. Cash (680 * 2,000) 1,360,000
Accounts Receivable 1,360,000
#
g. Merchandise Inventory, 12/31 (60 * 1,000) 60,000
Income Summary 60,000
Perpetual Inventory System
a. Merchandise Inventory 800,000
Accounts Payable 800,000
#
b. Accounts Payable 50,000
Merchandise Inventory 50,000
#
c. Accounts Payable 600,000
Cash 600,000
#
d. Accounts Receivable 1,580,000
Cost of Sales (790 * 1,000) 790,000
Sales 1,580,000
Merchandise Inventory 790,000
#
e. Sales Returns and Allowances 40,000
Merchandise Inventory 20,000
Accounts Receivable 40,000
Cost of Sales (20 * 1,000) 20,000
#
f. Cash 1,360,000
Accounts Receivable 1,360,000
#
g. Inventory Shortage [(70 – 60) * 1,000] 10,000
Merchandise Inventory 10,000
Requirement 2:

Periodic Inventory System Perpetual Inventory System

Inventory, Beginning 90,000.00 Cost of Sales, Unadj. 770,000.00

(90 * 1,000) [(790 - 20) * 1,000]
Net Purchases 750,000.00 Inventory Shortage 10,000.00
[(800 - 50) * 1,000) [(70 - 60) * 1,000]
Total Goods Available For Sale 840,000.00 Cost of Sales, Adj. 780,000.00
Inventory, Ending (60,000.00)
(60 * 1,000)
Cost of Sales 780,000.00
Problem 10-3: AUTUMN COMPANY
Requirement 1:
Gross Method
a. Purchases 4,750,000
Accounts Payable 4,750,000
#
b. Freight In 250,000
Cash 250,000
#
c. Accounts Payable (1,650,000 + 2,100,000) 3,750,000
Cash 3,717,000
Purchase Discounts [(1,617,000 / 98%) * 2%] 33,000
#
d. No Entry
#
e. Merchandise Inventory, 12/31 1,000,000
Income Summary 1,000,000
Net Method:
a. Purchases (4,750,000 * 98%) 4,655,000
Accounts Payable 4,655,000
#
b. Freight In 250,000
Cash 250,000
#
c. Accounts Payable [(1,650,000 + 2,100,000) * 98%] 3,675,000
Purchase Discount Lost (2,100,000 * 2%) 42,000
Cash 3,717,000
#
d. Purchase Discount Lost [(980,000 / 98%) * 2%] 20,000
Accounts Payable 20,000
#
e. Merchandise Inventory, 12/31 981,000
Income Summary 981,000
Requirement 2:

Gross Method Net Method

Net Purchases
Gross 4,967,000.00
(4,750,000 + 250,000 - 33,000)
Net 4,905,000.00
(4,655,000 + 250,000)
Inventory, Ending
Gross (1,000,000.00)
(4,750,000 + 250,000) / 5
Net (981,000.00)
(4,655,000 + 250,000) / 5
Cost of Sales 3,967,000.00 3,924,000.00
Problem 10-7: QUARRY COMPANY

Inventory Accts. Payable Net Sales

Unadjusted Balances 1,750,000.00 1,200,000.00 8,500,000.00
A (35,000.00)
B 50,000.00 50,000.00
C 20,000.00
D 26,000.00 (40,000.00)
E 25,000.00
F 30,000.00
G 60,000.00
H 10,000.00 20,000.00
Adjusted Balances 1,911,000.00 1,330,000.00 8,425,000.00

Adjusting Entries:
a. Sales 35,000
Accounts Receivable 35,000
#
b. Purchases 50,000
Accounts Payable 50,000
#
Merchandise Inventory, 12/31/2023 50,000
Income Summary 50,000
#
c. Merchandise Inventory, 12/31/2023 20,000
Income Summary 20,000
#
d. Sales Returns and Allowances 40,000
Accounts Receivable 40,000
#
Merchandise Inventory, 12/31/2023 26,000
Income Summary 26,000
#
e. Merchandise Inventory, 12/31/2023 25,000
Income Summary 25,000
#
f. Merchandise Inventory, 12/31/2023 30,000
Income Summary 30,000
#
g. Purchases 60,000
Accounts Payable 60,000
#
h. Freight In 20,000
Accounts Payable 20,000
#
Merchandise Inventory, 12/31/2023 10,000
Income Summary 10,000