Chapter 2 – Receivables

CHAPTER 2
RECEIVABLES

Discussion Question

20. a. Accounts Receivable

b. Receivables from Employees (part of non-trade receivables) – current assets
c. Advances to Suppliers – Current assets or deduction from Accounts Payable to the same
supplier
d. Accounts Receivable
e. Customers’ Accounts with Credit Balances – Current Liabilities
f. Cost of merchandise must be included in inventories
g. Accounts Receivable
h. Subscriptions Receivable – current asset if collectible within 12 months; otherwise, non-
current asset or deduction from Shareholders’ Equity
i. Other Non-Trade Receivables – Current asset or non-current asset depending on terms of
sale
j. Advances to Suppliers – Current Assets
k. Suppliers’ Accounts with Debit Balances or Advances to Suppliers – Current assets
l. Accounts Receivable
m. Claims for Income Tax Refund – Current Assets
n. Accounts Receivable, amount of loan presented separately as part of liabilities
o. Accounts Receivable
p. Not recognized anymore (for write off)

PROBLEMS

2-1. (Ginoo Company)

Gross Method
2022
Dec. 9 Accounts Receivable-First Lady 102,600
Sales 102,600
120,000 x 90% x 95%

10 Accounts Receivable-Men’s World 50,000

Sales 50,000

19 Cash 100,548
Sales Discounts 2,052
Accounts Receivable-First Lady 102,600

26 Accounts Receivable-Teens’ Kingdom 40,000

Sales 40,000

31 Sales Discounts 800

Allowance for Sales Discounts 800

2023
Jan. 5 Cash 39,200
Allowance for Sales Discounts 800
Accounts Receivable-Teens’ Kingdom 40,000

9 Cash 50,000
Accounts Receivable-Men’s World 50,000

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Net Method
2022
Dec. 9 Accounts Receivable-First Lady 100,548
Sales 100,548
102,600 x .0.98

Dec. 10 Accounts Receivable-Men’s World 49,000

Sales 49,000

19 Cash 100,548
Accounts Receivable-First Lady 100,548

Dec. 26 Accounts Receivable-Teens’ Kingdom 39,200

Sales 39,200

31 Accounts Receivable-Men’s World 1,000

Sales Discount Forfeited 1,000

2023
Jan. 5 Cash 39,200
Accounts Receivable – Teens’ Kingdom 39,200

9 Cash 50,000
Accounts Receivable-Men’s World 50,000

Allowance Method
2022
Dec. 9 Accounts Receivable-First Lady 102,600
Allowance for Sales Discount 2,052
Sales 100,548

10 Accounts Receivable-Men’s World 50,000

Allowance for Sales Discount 1,000
Sales 49,000

19 Cash 100,548
Allowance for Sales Discount 2,052
Accounts Receivable-First Lady 102,600

26 Accounts Receivable-Teens’ Kingdom 40,000

Allowance for Sales Discount 800
Sales 39,200

31 Allowance for Sales Discount 1,000

Sales Discount Forfeited 1,000

2023
Jan. 5 Cash 39,200
Allowance for Sales Discount 800
Accounts Receivable-Teens’ Kingdom 40,000

9 Cash 50,000
Accounts Receivable-Men’s World 50,000

Notes:

Under the gross price method, accounts receivable and sales are recorded at the gross invoice price.
When the price is described as list price, any trade discount is deducted to arrive at the gross invoice
price. When the customer pays within the discount period, sales discount is recognized, but if the
customer pays beyond the discount period, the collection is recorded at the gross invoice price
received. At the end of the reporting period, when customers’ accounts are not yet past the discount

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period and it is expected that these customers are availing the discount in the next accounting period, an
adjusting entry is made debiting sales discounts and crediting allowance for sales discounts. Sales
discounts are reported as deduction from sales in the profit or loss section of the statement of
comprehensive income, while allowance for sales discounts reduces the accounts receivable to potentially
realizable in cash reported in the statement of financial position.

Under net price method, accounts receivable and sales are recorded at the invoice price less cash
discount allowed. When the customer pays within the discount period, the collection is recorded at
the net price, but when the customer pays beyond the discount period, the transaction is recorded
recognizing/crediting sales discounts forfeited for the discount not taken. Sales discounts forfeited
is reported as other operating income in the profit or loss section of the statement of comprehensive
income

The allowance method is a combination of the first two methods. At time of sale, accounts receivable is
recorded at the gross amount, sales at the net amount, and an allowance for sales discounts is
recognized. When customers pay within the discount period, the allowance for sales discounts is
eliminated, but when the customers pay beyond the discount period, the allowance for sales discounts is
eliminated and at the same time recognizing sales discounts forfeited.

It is noted that in all three methods, the amounts reported as accounts receivable in the statement of
financial position and net revenue in the profit or loss section of the statement of comprehensive income
would be the same.

2-2. (Colleco Supermarket)

June Cash in Bank 1,764,000

1-30 Accounts Receivable – Citibank 2,450,000
Accounts Receivable – Metrobank 1,470,000
Credit Card Service Charges 116,000
Sales 5,800,000

1-30 Cash 3,234,000

Accounts Receivable – Citibank 2,156,000
Accounts Receivable – Metrobank 1,078,000

Notes:

If the credit card sales are credited directly to the bank, they are considered as cash sales. The service
charge by bank, (which may range from 2% to 5%) in this case all at 2%, is recorded as an expense by
Colleco Supermarket.

The credit card service charge may be recorded at time of collection instead of at time of sale. The
foregoing answers may be presented as follows:

From BDO
Cash 1,764,000
Credit Card Service Charge 36,000
Sales 1,800,000

From Citibank and Metrobank

Accounts Receivable-Citibank 2,500,000
Accounts Receivable-Metrobank 1,500,000
Sales 4,000,000

Upon collection
Cash 3,234,000
Credit Card Service Charge (3,300,000 x 2%) 66,000
Accounts Receivable-Citibank (2,156,000/.98) 2,200,000
Accounts Receivable-Metrobank (1,078,00/.98) 1,100,000

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Chapter 2 – Receivables

2-3. (Colayco Company)

Jul 14 Allowance for Doubtful Accounts 10,000

Accounts Receivable-Moret Co. 10,000

31 Notes Receivable 12,000

Sales 12,000

Aug. 15 Cash 20,000

Notes Receivable 15,000
Sales 35,000

Nov. 1 Cash 19,200

Credit Card Service Charge 800
Sales 20,000
4% x 20,000 = 800

4 Accounts Receivable-P. Noval 12,300

Notes Receivable 12,000
Interest Revenue 300
12,000 x .10 x 90/360 = 300

5 Accounts Receivable-Credit Card 8,550

Credit Card Service Charge 450
Sales 9,000

9 Cash 8,550
Accounts Receivable-Credit Card 8,550
5% x 9,000 = 450

15 Accounts Receivable-Moret Co. 10,000

Allowance for Doubtful Accounts 10,000

15 Cash 10,000
Accounts Receivable-Moret Co. 10,000

Dec. 13 Cash 15,600

Notes Receivable 15,000
Interest Revenue 600
15,000 x 12% x 120/360 = 600

2-4. (Format Company)

(a) Carrying value of the note on January 1, 2022 (4.5M x 0.7938) P3,572,100
Interest rate 8%
Interest revenue for 2022 P 285,768

Carrying value of the note on January 1, 2023 (3,572,100 + 285,768) P3,857,868

Interest rate 8%
Interest revenue for 2023 P 308,629

(b) Carrying value, December 31, 2022 (see above) P3,857,868

Carrying value, December 31, 2023 (3,857,868 + 308,629) P4,166,497

(c) The notes receivable is classified as a non-current asset at December 31, 2022 and
current asset at December 31, 2023

Notes:
Since the note is non-interest bearing and is exchanged for property, the note should be recorded at the
fair value of the property. However, the problem stated that there is no available fair value for the land;

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Chapter 2 – Receivables

hence, an imputed interest rate is used to determine the present value of the note. The note requires only
a single payment, therefore, the fair value of the note is its present value at time of receipt computed as
face amount multiplied by the present value of a single payment at the current market rate for
three periods (due after three years).

2-5. (Formatted Company)

(a) Carrying value of the note on January 1, 2022 (1.5 M x 2.5771) P3,865,650
Interest rate 8%
Interest revenue for 2022 P 309,252

Carrying value, January 1, 2023 (3,865,650 + 309,252 – 1.5M) P2,674,902

Interest rate 8%
Interest revenue for 2023 P 213,992

(b) Carrying value, January 1, 2022 P3,865,650

Add amortization of discount during 2022 309,252
Less first payment of principal (1,500,000)
Carrying value, December 31, 2022 P2,674,902

(c) Current Non-current Total

Principal due P1,500,000 P1,500,000 P3,000,000
Unamortized discount 213,992 111,106 325,098
Carrying amount, December 31, 2022 P1,286,008 P1,388,894 P2,674,902

Notes:

The note described in the problem is still non-interest bearing but is payable in installment over three
years. Again, there is no readily available fair value for the land; hence, an imputed interest rate is used
to determine the present value of the note. This time, the present value is taken by using the present
value of an ordinary annuity of 1 at the current market rate for three periods multiplied by the
amount of annuity (installment).

When the note is non-interest bearing, the interest revenue is equal to the amortization of discount.

2-6. (CRV Company)

(a) September 30, 2023 (1,000,000)+(3,000,000 x 6%) P1,180,000

September 30, 2024 (1,000,000)+(2,000,000 x 6%) P1,120,000
September 30, 2025 (1,000,000)+(1,000,000 x 6%) P1,060,000

(b) January 1 – September 30, 2023 (180,000 x 9/12) P 135,000

October 1 – December 31, 2023 (120,000 x 3/12) 30,000
Total interest revenue for 2023 P 165,000

(c) As of December 31, 2023 Current Non-current

Notes receivable P1,000,000 P1,000,000
Interest receivable (120,000 x 3/12) 30,000

Notes:

The note described in this problem is interest-bearing and is due in annual installments. When the note
is interest bearing and its interest rate approximates the current market rate for similar instruments
(termed as realistic), its fair value is its face value.

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2- 7. (Pinky Pop Company)

The present value of the note is determined as follows:

2.5 M + (5% x 7.5 M) = 2,875,000 x 0.9091 P2,613,663

2.5 M + (5% x 5.0 M) = 2,750,000 x 0.8264 2,272,600
2.5 M + (5% x 2.5 M) = 2,625,000 x 0.7513 1,972,163
Total P6,858,426

or 2.5 M x 2.4869 P6,217,250

(5% x 7.5 M) x 0.9091 340,913
(5% x 5.0 M) x 0.8264 206,600
(5% x 2.5 M) x 0.7513 93,913
Total P6,858,676

(Note that the difference is due to the rounding off of present value factors)

(a) Amortization Table

Payment of Interest Interest Amortization Carrying
Date Principal Paid Revenue of Discount Value
01/01/22 6,858,426
12/31/22 2,500,000 375,000 685,843 310,843 4,669,269
12/31/23 2,500,000 250,000 466,927 216,927 2,386,196
12/31/24 2,500,000 125,000 238,804* 113,804* ------------
*difference is due to rounding off

(b) Journal entries

2022
Jan. 1 Notes Receivable 7,500,000
Discount on Notes Receivable 641,574
Gain on Sale of Land 858,426
Land 6,000,000
7,500,000 – 6,858,426 = 641,574 Discount
6,858,426 – 6,000,000 = 858,426 Gain

Dec. 31 Cash 2,875,000

Discount on Notes Receivable 310,843
Interest Revenue 685,843
Notes Receivable 2,500,000
2023
Dec. 31 Cash 2,750,000
Discount on Notes Receivable 216,927
Interest Revenue 466,927
Notes Receivable 2,500,000
2024
Dec. 31 Cash 2,625,000
Discount on Notes Receivable 113,804
Interest Revenue 238,804
Notes Receivable 2,500,000

Notes:

The note is interest-bearing, but the rate of interest of the note (5%) is unreasonably lower (unrealistic)
than the prevailing rate (10%) for similar obligation. The amortized cost of the note on the date it is
received is equal to the present value of principal and interest payments discounted at the imputed
interest rate, which should approximate the market rate of interest for similar obligation. The difference
between the face amount of the note (P7,500,000) and its present value (P6,858,426) is recorded as
discount. The discount is amortized to interest revenue over the term of the note using the effective
interest method.

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Notice that amortization of discount increases the carrying value and the nominal interest on the note.
Amortization of discount effectively increases the nominal interest income (5%) to its market or effective
rate (10%).

2-8. (Pinky Pip Company)

The present value of the note is determined as follows:

2.5 M + (14% x 7.5 M) = 3,550,000 x 0.9091 P3,227,305
2.5 M + (14% x 5.0 M) = 3,200,000 x 0.8264 2,644,480
2.5 M + (14% x 2.5 M) = 2,850,000 x 0.7513 2,141,205
Total P8,012,990

or 2.5 M x 2.48685 P6,217,125

(14% x 7.5 M) x 0.9091 954,555
(14% x 5.0 M) x 0.8264 578,480
(14% x 2.5 M) x 0.7513 262,955
Total P8,013,115

(Note that the difference in the computation is due to rounding off of present values)
(a) Amortization Table
Payment of Interest Interest Amortization Carrying
Date Principal Paid Revenue of Premium Value
01/01/22 8,012,990
12/31/22 2,500,000 1,050,000 801,299 248,701 5,264,289
12/31/23 2,500,000 700,000 526,429 173,571 2,590,718
12/31/24 2,500,000 350,000 259,282* 90,718* ------------
*Difference is due to rounding off

(b) Journal entries

2022
Jan. 1 Notes Receivable 7,500,000
Premium on Notes Receivable 512,990
Gain on Sale of Land 2,012,990
Land 6,000,000
8,012,990 – 7,500,000 = 512,990 Premium
8,012,990 – 6,000,000 = 2,012,990 Gain

Dec. 31 Cash 3,550,000

Premium on Notes Receivable 248,701
Interest Revenue 801,299
Notes Receivable 2,500,000
2023
Dec. 31 Cash 3,200,000
Premium on Notes Receivable 173,571
Interest Revenue 526,429
Notes Receivable 2,500,000
2024
Dec. 31 Cash 2,850,000
Premium on Notes Receivable 90,718
Interest Revenue 259,282
Notes Receivable 2,500,000

Notes:

The note is interest-bearing, but the rate of interest of the note (14%) is unreasonably higher (unrealistic)
than the prevailing rate (10%) for similar obligation. The amortized cost of the note on the date it is
received is equal to the present value of principal and interest payments discounted at the imputed
interest rate, which should approximate the market rate of interest for similar obligation. The difference
between the face amount of the note (P7,500,000) and its present value (P8,012,990) is recorded as
premium. The premium is amortized to interest revenue over the term of the note using the effective

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interest method. Notice that amortization of premium decreases the carrying value and the nominal
interest on the note. Amortization of premium effectively decreases the nominal interest income (at
14%) to its market or effective rate (10%).

2-9. (Toyota Products, Inc.)

a. Accounts Receivable 4,800,000

Sales 4,800,000

b. Cash 3,920,000
Sales Discounts 80,000
Accounts Receivable 4,000,000

c. Sales Returns 60,000

Accounts Receivable 60,000

d. Allowance for Uncollectible Accounts 20,000

Accounts Receivable 20,000

e. Accounts Receivable 5,000

Allowance for Uncollectible Accounts 5,000

Cash 5,000
Accounts Receivable 5,000

f. Notes Receivable 25,000

Accounts Receivable 25,000

g. Cash 400,000
Notes Payable-Bank 400,000

Cash 150,000
Accounts Receivable 150,000

Notes Payable-Bank 150,000

Cash 150,000

h. Uncollectible Accounts Expense 65,000

Allowance for Uncollectible Accounts 65,000
9,000 – 20,000 + 5,000 = 6,000 debit
59,000 + 6,000 = 65,000

i. Interest Receivable 250

Interest Revenue 250
25,000 x 12% x 30/360
Accounts receivable
(450,000+4,800,000–4,000,000–60,000 - 20,000–25,000–150,000) P995,000
Less Allowance for uncollectible accounts 59,000
Amortized cost of accounts receivable P936,000

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Chapter 2 – Receivables

2-10. (Word Company)

Amounts reported in 2022 financial statements:

Receivables Impairment Loss P52,000
Loss Allowance 50,000

Required balance in loss allowance account:

(2% x 500,000) + (10% x 200,000) + (20% x 100,000) P50,000
Reported balance in allowance before adjustments, December 31 (debit) 2,000
Receivables impairment loss P52,000

Notes:
Receivable impairment loss is an account equivalent to bad debts expense or doubtful accounts expense
while loss allowance is an account equivalent to allowance for bad debts or allowance for doubtful
accounts

2-11. (Edit Company)

Allowance for Uncollectible Accounts, beg P 6,000

Recovery of accounts previously written off 3,000
Uncollectible accounts expense for 2022 48,000
Allowance for Uncollectible Accounts, (12,000)
end Accounts written off during 2022 P45,000

2-12. (Rav, Inc.)

Accounts Receivable, December 31, 2021 P 337,000

Transactions during 2022
Sales on account 1,500,000
Cash received from customers (1,600,000)
Cash discounts allowed: (882,000 ÷ 98%) x 2% P18,000
(495,000 ÷ 99%) x 1% 5,000 (23,000)
Recovery of accounts written off 3,000
Accounts written off as worthless (11,000)
Credit memoranda for sales returns (6,000)
Accounts Receivable, December 31, 2022 P 200,000

Impairment Loss Allowance , December 31, 2021 P 12,000

Recovery of accounts written off 3,000
Accounts written off as worthless (11,000)
Impairment loss on receivables 15,000
Impairment Loss Allowance, December 31, 2022 P 19,000

The computation may also be conveniently done through T-accounts, as follows:

Accounts Receivable
Balance, beg 337,000 Collections 1,600,000
Sales on account 1,500,000 Cash discounts 23,000
Recovery 3,000 Write off 11,000
Sales returns 6,000
Total 1,840,000 Total 1,640,000
Balance, end 200,000

Impairment Loss Allowance

Write off 11,000 Balance, beg 12,000
Recovery 3,000
Impairment Loss 15,000
Total 11,000 Total 30,000
Balance, end 19,000

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2-13. (Revo Company)

(a) Impairment loss allowance balance, January 1, 2022 P 34,000

Accounts written off (47,000)
Recovery of accounts previously written off 7,000
Additional accounts written off (6,000)
Impairment loss allowance balance, December 31, 2022
before adjustments (debit balance) (P12,000)
Required balance in Impairment loss allowance based on aging
(5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000) 53,600
Receivable impairment loss for the year 2022 P65,600

(b) Accounts Receivable, December 31, 2022 P654,000

Less Impairment loss allowance 53,600
Amortized cost of accounts receivable, December 31, 2022 P600,400

2-14. (Adventure Company)

(a) Accounts Receivable, January 1 P 1,200,000

Transactions during 2022
Sales 10,000,000
Cash collected from customers (8,720,000)
Recovery of accounts previously written off 20,000
Note received in settlement of an account ( 400,000)
Accounts written off as ( 100,000)
worthless Accounts Receivable, P 2,000,000
December 31
Accounts Receivable, December 31 P 2,000,000
Past due accounts 600,000
Current accounts/Not yet past due P 1,400,000

Adjusted balance of Impairment loss allowance

20% x 600,000 past due accounts P 120,000
5% x 1,400,000 current accounts 70,000
Total P 190,000

(b) Impairment loss allowance, January 1, 2022 P 60,000

Accounts written off during the year as worthless (100,000)
Recovery of accounts previously written off 20,000
Impairment loss allowance, Dec. 31 before adjustment (Dr) P(20,000)
Adjusted impairment loss allowance, Dec. 31. 190,000
Impairment loss for 2022 P210,000

(c) Accounts Receivable P2,000,000

Less Impairment loss allowance 190,000
Amortized cost of accounts receivable, December 31, 2022 P1,810,000

2-15. (a)
Carrying amount of the loan, December 31, 2022 1,000,000
Probability of collection 95%
Future cash flows 950,000
Present value factor (8%, 5 periods) 0.6806
Present value of future cash flows, December 31, 2022 646,570

Carrying amount of the loan, December 31, 2022 1,000,000

Present value of future cash flows, December 31, 2022 646,570
Expected credit losses 353,430
Probability of default – 12 months 4%
12-month expected credit losses 14,137

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(b)
Carrying amount of loan 1,000,000
Allowance for expected credit losses 14,137
Amortized cost of loan receivable 985,863

2-16. (a)
Carrying amount of the loan, December 31, 2023 1,000,000
Probability of collection 70%
Future cash flows 700,000
Present value factor (8%, 4 periods) 0.7350
Present value of future cash flows, December 31, 2023 514,500

Carrying amount of the loan, December 31, 2023 1,000,000

Present value of future cash flows, December 31, 2023 514,500
Expected credit losses 485,500
Probability of default – 4 years 10%
Lifetime expected credit losses 48,550
Allowance for expected credit losses, December 31, 2022 14,137
Impairment loss - 2023 34,413

(b)
Carrying amount of loan 1,000,000
Allowance for expected credit losses 48,550
Amortized cost of loan receivable 951,450

2-17. (Maynilad Bank)

Alternative 1
Carrying value (10 M + 1M) 11,000,000
Present value of future cash inflows:
Principal due on 12/31/24 (9M x 0.8264) P7,437,600
Interest for 2 years
9M x 8% = 720,000; 720,000 x 1.7355 1,249,560 8,687,160
Impairment loss P2,312,840

Entry: Restructured Notes Receivable 8,687,160

Impairment Loss – Receivables 2,312,840
Notes Receivable 10,000,000
Interest Receivable 1,000,000

Or Restructured Notes Receivable 9,000,000

Impairment Loss – Receivables 2,312,840
Discount on Restructured NR 312,840
Notes Receivable 10,000,000
Interest Receivable 1,000,000

Alternative 2
Carrying value (10 M + 1M) 11,000,000
Present value of future cash inflows:
2M + (8% x 10M) = 2,800,000 x 0.9091 2,545,480
2M + (8% x 8M) = 2,640,000 x 0.8264 2,181,696
2M + (8% x 6M) = 2,480,000 x 0.7513 1,863,224
2M + (8% x 4M) = 2,320,000 x 0.6830 1,584,560
2M + (8% x 2M) = 2,160,000 x 0.6209 1,341,144 9,516,104
Impairment loss 1,483,896

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Entry: Restructured Notes Receivable 9,516,104

Impairment Loss – Receivables 1,483,896
Notes Receivable 10,000,000
Interest Receivable 1,000,000

Or Restructured Notes Receivable 10,000,000

Impairment Loss- Receivables 1,483,896
Discount on Restructured NR 483,896
Notes Receivable 10,000,000
Interest Receivable 1,000,000

Alterna tive 3
Carrying value 10,000,000
Present value of future cash inflows:
Principal due on 12/31/24 (10M x 0.8264) 8,264,000
Interest due on 12/31/23 and 12/31/24
10M x 7% = 700,000; 700,000 x 1.7355 1,214,850 9,478,850
Impairment loss 521,150

Entry: Restructured Notes Receivable 9,478,850

Impairment Loss – Receivables 521,150
Notes Receivable 10,000,000

Cash 1,000,000
Interest Receivable 1,000,000

Or Restructured Notes Receivable 10,000,000

Impairment Loss – Receivables 521,150
Discount on Restructured NR 521,150
Notes Receivable 10,000,000

Cash 1,000,000
Interest Receivable 1,000,000

Alternative 4
Carrying value 11,000,000
Present value of future cash inflows:
Principal due on 12/31/24 (11M x 0.82644628) 9,090,909
Interest due on 12/31/23 and 12/31/24
11M x 10% = 1,100,000;
1,100,000 x 1.73553719 1,909,091 11,000,000
No impairment loss -0-

No entry is required for the restructuring.

Notes:

If a receivable is assessed individually and considered credit impaired, the impairment loss is measured
as the excess of its carrying amount (net of any allowance for uncollectible accounts) over the present
value of the estimated future cash flows discounted at the historical or original effective interest rate.

2-18. (Kate Company)

(a) Cash 750,000

Notes Payable – National Bank 750,000

(b) Current assets:

Trade and other receivables (including P900,000 of accounts
pledged as collateral for a loan with National Bank) P3,000,000

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Current liabilities:
Notes Payable – National Bank P 750,000
Interest Payable (750,000 x 12% x 1/12) 7,500

Notes:

Pledging of accounts receivable does not, in any manner, affect the amount of accounts receivable
reported in the statement of financial position. The fact that a certain amount of accounts receivable is
pledged simply requires a disclosure in the financial statements.

2-19. (Lexus Company)

Sept. 1 Accounts Receivable Assigned 800,000

Accounts Receivable 800,000

Cash 634,000
Finance Charges 16,000
Notes Payable – Pacific Bank 650,000
Amount of the loan P650,000
Less service charge (2% x 800,000) 16,000
Net proceeds from the assignment
of accounts receivable P634,000

1-30 Cash 300,000

Accounts Receivable Assigned 300,000

30 Notes Payable – Pacific Bank 300,000

Interest Expense 6,500
Cash 306,500
650,000 x 12% x 1/12 = 6,500

Oct. 1-31 Allowance for Uncollectible Accounts 10,000

Accounts Receivable Assigned 10,000

31 Cash 400,000
Accounts Receivable Assigned 400,000

31 Notes Payable – Pacific Bank 350,000

Interest Expense 3,500
Cash 353,500
350,000 x 12% x 1/12 = 3,500

31 Accounts Receivable 90,000

Accounts Receivable Assigned 90,000
Notes:

Specific assignment of accounts receivable is no different from pledging. The total amount of accounts
receivable is likewise not affected by the specific assignment. They are simply segregated as accounts
receivable assigned and still included in the total amount reported in the statement of financial position.
In the given problem, Lexus Company may not have notified its customers that their accounts were
assigned to Pacific Bank; thus, Lexus continue to collect from them.

2-20. (Accord Company)

July 1 Accounts Receivable Assigned 5,000,000

Accounts Receivable 5,000,000

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Chapter 2 – Receivables

July 1 Cash 3,800,000

Finance Charges 200,000
Notes Payable – Bank 4,000,000
5% x 4,000,000 = 200,000

21 Sales Returns and Allowances 200,000

Accounts Receivable Assigned 200,000

31 Cash 2,450,000
Sales Discounts 50,000
Accounts Receivable Assigned 2,500,000
2% x 2,500,000 = 50,000

Aug. 1 Notes Payable – Bank 2,500,000

Interest Expense 40,000
Cash 2,540,000
4M x .12 x 1/12 = 40,000

15 Allowance for Uncollectible Accounts 50,000

Accounts Receivable Assigned 50,000

31 Cash 2,000,000
Accounts Receivable Assigned 2,000,000

Sept. 1 Notes Payable – Bank 1,500,000

Interest Expense 15,000
Cash 1,515,000
1.5M x .12 x 1/12 = 15,000

1 Accounts Receivable 250,000

Accounts Receivable Assigned 250,000

2–21. (Fortune Company)

Oct. 1 Accounts Receivable Assigned 2,000,000

Accounts Receivable 2,000,000

1 Cash 1,410,000
Finance Charges 90,000
Notes Payable 1,500,000

31 Interest Expense 15,000

Notes Payable 985,000
Accounts Receivable Assigned 1,000,000
1.5M x .12 x 1/12 = 15,000

Nov. 30 Notes Payable 515,000

Interest Expense 5,150
Cash 279,850
Accounts Receivable Assigned 800,000
515,000 x 0.12 x 1/12 = 5,150

30 Accounts Receivable 200,000

Accounts Receivable Assigned 200,000

Notes:

Unlike problems 17 and 18, this problem stated that the assignment was on a notification basis; thus
customers were instructed to make payment of their accounts directly to the bank. Upon receipt of

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Chapter 2 – Receivables

notice that the bank has collected from the company’s assigned accounts, the amount is applied as
payment of the company’s liability to the bank.

2-22. (Highlander Company)

(a)
Sept. 1 Cash 684,000
Receivable from Factor 36,000
Loss from Factoring 80,000
Accounts Receivable 800,000
800,000 x 10% =80,000 Loss;
720,000 x 5% = 36,000 withheld
Nov. 1 Cash 582,000
Finance Charges 18,000
Notes Payable-Bank 600,000
3% x 600,000 = 18,000

(b)
Dec. 31 Uncollectible Accounts Expense 11,600
Allowance for Uncollectible Accounts 11,600
(250,000 + 1,000,000) x 2% = 25,000 – 13,400

Notes:

The problem includes factoring which is actually a transfer of receivables without recourse, equivalent to
a sale of accounts receivable. This transaction, therefore, derecognizes the receivables in the accounts
and a loss on sale or loss from factoring is recorded.

2-23. (Hiku Company)

(a) Selling price of Accounts Receivable (90% x P1,200,000) P1,080,000

Factor’s holdback (6% x 1,080,000) (64,800)
Cash received from factoring P1,015,200

(b) Accounts receivable assigned balance (500,000 – 350,000) P 150,000

Balance of notes payable to the bank
Notes Payable before payment 400,000
Less first payment 350,000
Interest (1% x 400,000) 4,000 346,000 (54,000)
Equity on assigned accounts P 96,000

(c) Face value of note discounted P 50,000

Interest for the full term April 30 – August 28
(50,000 x 9% x 120/360) 1,500
Maturity value P 51,500
Discount (51,500 x 10% x 88/360) (1,259)
Proceeds P 50,241

2-24. (Edsamail Company)

(a) Maturity value = 500,000 + (500,000 x .08) = 540,000

Proceeds = 540,000 – (540,000 x 0.10 x 5/12) = 517,500

(b) Interest Receivable 23,333

Interest Revenue 23,333
500,000 x 8% x 7/12

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Chapter 2 – Receivables

Cash 517,500
Loss on Sale of Notes Receivable 5,833
Notes Receivable 500,000
Interest Receivable 23,333

(c) Cash 517,500

Liability on Discounted Notes 517,500
Notes:

When the notes receivable is discounted without recourse, initially the interest is accrued to the date of
discounting. A gain or loss on sale of notes receivable is recognized for the difference between the
proceeds and the carrying amount of notes receivable (includes accrued interest). Notice that the notes
receivable and related accrued interest are both derecognized in the accounts. The transaction is
considered a sale of notes receivable.

When the notes receivable is discounted with recourse, the transaction is deemed as a borrowing. The
notes receivable remains in the accounts and a liability on discounted notes is recorded equal to the
proceeds. It will be noted that the proceeds in both situations (with recourse and without recourse) are
computed in the same manner.

2-25. a. Proceeds 90,000 – (90,000 x 0.10 x 20/365) = P89,507

Cash 89,507
Liability on Discounted Notes 89,507

b. Maturity value =75,000 + (75,000 x 0.09 x 90/365)= 76,664

Proceeds =76,664 – (76,664 x 0.10 x 50/365) = P75,614

Cash 75,614
Liability on Discounted Notes 75,614

c. Maturity value 60,000 + (60,000 x 0.12 x 120/365)= P62,367

Proceeds 62,367 – (62,367 x 0.10 x 45/365) = P61,598

Cash 61,598
Liability on Discounted Notes 61,598

2-26. (Crosswind Corporation)

2022
Feb. 1 Notes Receivable 360,000
Accounts Receivable 360,000

Apr. 1 Cash 359,910

Liability on Discounted Notes 359,910
360,000 + (360,000 x .10 x 9/12) = 387,000
387,000 – (387,000 x .12 x 7/12) = 359,910

Nov. 2 Liability on Discounted Notes 359,910

Interest Expense 27,090
Notes Receivable 360,000
Interest Revenue 27,000
387,000 x .12 x 7/12 = 27,090
360,000 X .10 X 9/12 = 27,000

2 Accounts Receivable 389,000

Cash 389,000
387,000 + 2,000

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Chapter 2 – Receivables

2-27. (Explorer Company)

(a)
Accounts receivable factored P2,000,000
Purchase price 85%
Purchase price of accounts receivable factored P 1,700,000
Less amount withheld (5% x 1,700,000) 85,000
Net cash received from the factored accounts P 1,615,000
(or simply 2,000,000 x 85% x 95% =
1,615,000)
(b)
Cash 1,615,000
Receivable from Factor 85,000
Loss on Factoring 300,000
Accounts Receivable 2,000,000

Sales Returns 30,000

Receivable from Factor 30,000

Cash 55,000
Receivable from Factor 55,000

2-28. (Nature Company)

(a)
1/1/22 Interest Revenue 2,800
Interest Receivable 2,800
Reversing entry

(1) Accounts Receivable 3,000,000

Sales 3,000,000

(2) Cash 2,250,000

Sales Discounts 882,000/98% = 900,000 x 2% 18,000
Accounts Receivable (2,268,000 – 180,000)* 2,088,000
Accounts Receivable Assigned * 180,000
*See Item (9)

(3) Notes Receivable 250,000

Accounts Receivable 250,000

(4) Cash 216,000

Notes Receivable 200,000
Interest Revenue 16,000

(5) Cash 41,400

Liability on Discounted Notes 41,400

Liability on Discounted Notes 41,400

Interest Expense 4,600
Notes Receivable 40,000
Interest Revenue 6,000

(6) Accounts Receivable Assigned 300,000

Accounts Receivable 300,000

Cash 222,000
Finance Charges 18,000
Notes Payable - Bank 240,000

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Chapter 2 – Receivables

(7) Accounts Receivable 15,900

Notes Receivable 15,000
Interest Revenue 900

(8) Allowance for Uncollectible Accounts 12,000

Accounts Receivable 12,000

(9) Notes Payable - Bank 180,000

Interest Expense 3,000
Cash 183,000

(10) Uncollectible Accounts Expense 30,000

Allowance for Uncollectible Accounts 30,000
30,000 – (12,000 – 12,000)

(11) Interest Receivable 3,200

Interest Revenue 3,200

(b) Trade and Other Receivables include the following:

Notes Receivable P 95,000
Accounts Receivable – Unassigned 965,900
Accounts Receivable - Assigned 120,000
Interest Receivable 3,200
Allowance for Uncollectible Accounts (30,000)
Total P1,154,100

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