-Chapter 2 - Recetvables 1-21. t i 2-21 pete a campeny completed the following selected transactions Oct. 1 Assigned accounts of P2,000,000 to Ayala Bank under a notification basis. Ayala Bank made an advance of 75% and deducted a 6% finance charge based on the amount advanced. 31 Received notice from Ayala Bank that it had collected P1,000,000 assigned accounts and charged the company 12% interest. Ayala Bank applied the collection : first to interest, and the balance to principal repayment. Nov. 30 Received notice from Ayala Bank that it had collected P800,000. Ayala remitted to Fortune the amount due to the latter, after deducting 12% interest on the Joan balance. . REQUIRED: Prepare journal entries in the books of Fortune Company to record the foregoing transactions. 2-22. During its second year of operations, Highlander Company thought of expanding its business. To generate additional cash necessary for this expansion, on September 1, 2022, the company factored P800,000 of accounts receivable to Ace Finance Company. Factoring fee was 10% of the receivables purchased. The finance company withheld 5% of the purchase price as protection against sales returns and allowances. On November 1, 2022, Highlander assigned accounts receivable amounting to P1,000,000 to City Bank as collateral on P600,000, 12% loan. City Bank deducted a 3% finance charge in advance. Additional information on December 31, 2022, before year-end adjustments: Allowance for Uncollectible Accounts - P13,400 (crea Estimated uncollectibles - 2% of accounts receivable é Accounts Receivable, excluding factored and assigned accounts P250,000. None of the assigned accounts were collected. 137ne SCSI IES 2-24. REQUIRED: (a) Entry to record the factoring and the general assignment op accounts receivable. 1 (b) Entry to adjust the allowance for uncollectible accounts on December 31, 2022. During its second year of operations, Hiku Company thought of expanding its business. To generate additional cash for this expansion, on April 1, 2022, the company factored P1,200,000 of accounts receivable to Challenge Finance. Challenge Finance charged 10% factoring fee based on the receivables purchased and withheld 6% of the purchase price as protection against sales returns and allowances. On May 1, 2022, Hiku assigned accounts receivable amounting to P500,000 to First Bank as collateral. The bank advanced 80% of the assigned accounts less finance charge of 5% based on the amount advanced. In May, Hiku collected P350,000, which it remitted to the bank on June 1. The bank applied the amount first to interest at the rate of 1% per month based on the outstanding balance and the remainder to the principal. On June 1, Hiku discounted a note receivable with a face value of P50,000 with BPI at a discount rate of 10%. The PSO,000 face value note bears 9% interest, is dated April 30 and due on August 28. REQUIRED: Determine the following (Use a 360-day year) - (a) Amount of cash received from the factoring of accounts receivable (b) Equity on assigned accounts as of June 1 after remittance to the bank (c) Cash proceeds from the discounting of note on June 1 Edsamail Company received from a customer a one-yeah P500,000 note bearing annual interest of 8%. Five months before maturity, Edsamail discounted the note at Asian Bank at 10%. REQUIRED: (a) What were the proceeds from the note discounting? 138Chapter 2 ~ Recetvables (2) Give the entry for the discounting, assuming the note was discounted without recourse. (o) Give the entry for the discounting, assuming the note was discounted with recourse, 2-25. On May 16, 2022, EBT discounted with the bank the following notes,at 10%, a. 30-day, P90,000 non-interest-bearing note dated May 6, 2022 b. 90-day, P75,000, 9% note dated April 6, 2022 ee 120-day, P60,000, 12% note dated March 2, 2022 ‘REQUIRED: Determine the cash proceeds from discounting each note and record the discounting transaction assuming the discounting is made with recourse. Use a 365-day year. Round off figures to the nearest peso. 2-26. On February 1, 2022, Crosswind Corporation acquired a 10%, 9- month note receivable from a customer in settlement of an overdue accounts receivable of P360,000. The principal and interest are due at maturity. On April 1, 2022, Crosswind discounted the note at Philippine Bank ‘at 12%. During November, Philippine Bank notified Crosswind that the maker dishonored the note and the bank charged Crosswind’s account the maturity value of the note plus a protest fee of P2,000. REQUIRED: Prepare all entries in the books of Crosswind relating to the above. 2-27. Explorer Company finances some of its current operations by factoring its accounts receivable to a finance company. On July 1, 2022, the company factored P2,000,000 of its accounts receivable to Atlas Finance Company. Purchase price was 85% of the receivables factored. Atlas withheld 5% of the purchase Price as protection against sales returns and allowances. Explorer recorded sales returns of P30,000 on the factored accounts receivable. The finance company settled the holdback on August 31, 2022. 139Chapter 2 - Receivables REQUIRED: received bY Explorer from the., (a) What was the nef cash factored accounts? Explorer to record th, ne books of eT st 2022. Give the entries in t a A foregoing in the months of July @ nufactures 4) the company ivables: na nd sells beauty eect 2-28. pes Nabe ne Bs completed the following retailers. Durin, . transactions related to rece! unt, all under the terms. 000,000 on acco’ q) Sold goods, P3, ses the gross method ty 2/15, n/60. The company © record accounts receivable. tomers on account was (2) Total cash collected from custo! u 2,250,000. Customers who paid 882,000 paid their accounts within the discount period. (3) Notes received in settlement of account were P250,000. (4) Collected P200,000 of notes receivable plus interest of P16,000 (which includes the P2,800 interest receivable at December 31, 2021). (5) Notes receivable discounted with recourse were 40,000. Proceeds from the discounting were P41,400. The total maturity value of the notes is P46,000. All of these notes matured without notice of protest. (6) Accounts receivable assigned were P300,000 on a loan for P240,000. Service fees of P18,000 were charged by the finance company on the assignment. (7) Notes receivable of P15,000 were overdue as of December 31, on which P900 interest has accrued. (8) Accounts of P12,000 were written off during 2022. (0) As of December 31, P180,000 of the assi “ ; , 6 assigned accou” had already been collected [included in (Oy, this amount plus appropriate interest of P: jtted 1° the finance company, 3,000 hed been remit ; (10) As of December 31, an assessment’ of collectability of the receivables indicated that th. ibe e all 4 accounts must be adjunted sa be nO 140Chapter 2 ~ Receivables (11) Of the remaining notes not yet due, P3,200 interest had accrued at December 31. The following were the balances as of December 31, 2021: Notes Receivable P 100,000 Interest Receivable 2,800 Accounts Receivable 600,000 Allowance for Uncollectible Accounts 12,000 REQUIRED: (a) Prepare entries relating to the foregoing, including year- end adjustments and any reversing entries at January 1. (b) Determine the single amount that will be shown in the line item “Trade and Other Receivables” under the current assets section of the statement of financial position. 141Chapter 2 - Receivables MC1 MC2 MC3 MC4 MULTIPLE CHOICE QUESTIONS m officers, employees, or le fro: i ae vable fro nancial position as i rt recei An entity should repo eee 0 affiliated companies in the sta’ ithi: onths. a. current assets, if collectible within twelve mi b. non-current assets only. ‘ é : c. trade notes and accounts receivable if they otherwise qualify as current assets, d. offsets to capital. Which of the following is not a valid basis for using trade discounts as adjustment to list price? a. To avoid frequent changes in price catalogs. / b. To encourage collection of account within a specified period. c. To make price differentials among different classes of customers. i d. To encourage customers to buy in big quantities. Under the allowance method of recording cash discounts, an entity records sales discounts a. when it offers the discount at the date of sale. b. when it collects the account within the discount period. c. when the customer does not pay within the discount period. d. when the customer pays beyond the discount period. If a company employs the gross method of recording accounts receivable from customers, it should report sales discounts taken as a deduction from sales in the statement of comprehensive . income. b. an item of "other expense” in the statement of comprehensive income. c. a deduction from accounts receivable in determining the net realizable value of accounts receivable. d. a deduction from the cost of goods sold in the statement of comprehensive income. 142MC5 MC6 MC7 MC8 Chapter 2 - Receivables If a company employs the net method of recording accounts receivable from customers, it should report sales discounts not taken as a. a deduction from sales in the statement of comprehensive income. b. an item of other expense in the statement of comprehensive income. ¢. an item of other income in the statement of comprehensive income. d. a deduction from the gross accounts receivable to arrive at amortized cost. What is the initial recognition basis of a non-interest-bearing note received in exchange for property? At fair value of the property or note At maturity value of the note At face value of the note At the carrying amount of the property Boge At the beginning of 2020, Evans Company received a three- year zero-interest-bearing P600,000 note receivable for merchandise sold. The market rate for equivalent notes was 8% at that time. Evans reported this note as charge to notes receivable and a credit to sales revenue for P600,000. What effect did this accounting for the note have on Evans’ profit for 2020, 2021, 2022, and its retained earnings at the end of 2022, respectively? Overstate, understate, understate, understate Overstate, overstate, overstate, overstate Overstate, overstate, understate, no effect Overstate, understate, understate, no effect Bop An entity uses the allowance method of accounting for uncollectible accounts. What is the effect on profit and amortized cost of accounts receivable of the entry to write off a customer’s account? Amortized Cost Profit of Accounts Receivable a. None None b. Decrease Decrease o ‘Increase Increase a. Decrease None 143Mco MC10 MC11 MC12 Chapter 2 - Receivables cognizing uncollectibje When the allowance method of recog time of collecting accounts expense is used, the of an account previously written off would increase profit. decrease profit. a increase the allowance for uncollectible accounts. increase the amortized cost of accounts receivable. Boop How would you describe the total amount determined by an entity in this series of computations based on an aging schedule of accounts receivable: 2% of the total peso balance of accounts from 1-60 days past due, plus 5% of the total peso balance of accounts from 61-120 days past due and so on? It is the amount of uncollectible accounts expense reported in the statement of comprehensive income b. It is the amount of the adjusting entry for the allowance for uncollectible accounts at year-end. It is the required credit balance of the allowance for uncollectible accounts at year-end. d. This amount plus the total amount of accounts written off during the year is the amount of uncollectible accounts a. expense. Which form of receivables financing is equivalent to an absolute sale of accounts receivable? a. Pledge of accounts receivable b. Assignment of accounts receivable ¢. Factoring d. Discounting of notes receivable Which of the following is not a required disclosure for loans and receivables? a. The names of the debtors who defaulted on the payment of their loans or accounts 2 b. The criteria for recognition and basis of measurement applied ¢. Material items of income and expense and gains and losses resulting from receivables d. The nature and amount of impairment loss recognized in profit or loss 144Mc13 MC14 MCI5 MC16 Chapter 2 ~ Receivables Which of the following statements is true? a. When individual customers’ accounts have credit balances of material amounts, these amounts must be deducted from the debit balance 'in other customers’ accounts in the statement of financial position. b. ‘Sales revenue is increased by a recovery of an account previously written off. c. A non-interest-bearing promissory note is measured on the statement of financial position at face value less the amount of unamortized discount. d. "It is appropriate to measure the impairment on receivable based on recognized sales or other revenues. Which of the following shall an enterprise taken consider when measuring and recognizing impairment loss on receivables? E Past experiences on the collectability of the receivables I. Present condition of the debtor, including the present economic environment. I. Future expectations based on information available without undue cost and effort. a. Lonly b. Honly c. land II a. I, Wand I A company writes off as uncollectible an account receivable from a bankrupt customer. The company has an adequate amount in its Allowance for Bad debts. This transaction will a. decrease profit for the period. b. decrease total current assets. c. decrease the amount of owners’ equity. d. have no effect on total current assets. A 60-day, 6% interest-bearing note receivable was immediately discounted at a bank at 8%. The proceeds received from the bank upon discounting would be the maturity value less the discount at 8%. maturity value less the discount at 6%. maturity value plus the discount at 8%. face value less the discount at 8%. poop 145