Receivables

RECEIVABLES Accounts Receivable Estimation of Doubtful Accounts Notes Receivable Loans Receivable Receivable Financing

Trade and other receivables 

At year end, Faith Corporation reported that the current receivables consisted of the following:

Trade accounts receivable

930,000

Allowance for uncollectible accounts

(20,000)

Claims against shipper for goods lost in transit in November

30,000

Selling price of unsold goods sent by Faith on consignment at 130% of cost and not included in Faith’s ending inventory

260,000

Security deposit on lease of warehouse

used for storing some inventories TOTAL

300,000 1,500,000

Question: What total amount should be reported as trade and other receivables under current assets at year end?



Ans. 940,000

Trade and cash discounts 

Assume the following data for Mighty Company:

List price of merchandise sold Trade discount Sales discount Invoice price of merchandise returned on Jan. 8 Date of Sale Date collected

200,000 10, 20 2/15, n/30 10,000 January 5, 2019 January 20, 2019

Required: Compute for the total cash collection of Mighty Company.



Ans. 131, 320

Accounts receivable WIL Company provided the following information relating to current operations: Accounts receivable, January 1 4,000,000 Accounts receivable collected 8,400,000 Cash sales 2,000,000 Inventory, January 1 4,800,000 Inventory, December 31 4,400,000 Purchases 8,000,000 Gross margin on sales 4,200,000 

Question: What is the balance of the accounts receivable on December 31?



Ans. 6,200,000

Doubtful Accounts (Aging) 

Way Company prepared an aging of accounts receivable on December 31 and determined that the net realizable value of the accounts receivable was 2,500,000.

Allowance for doubtful accounts, January 1 Accounts written of as uncollectible Accounts receivable on December 31 Uncollectible accounts recovery

280,000 230,000 2,700,000 50,000

Question: What amount should be recognized as doubtful accounts expense for the current year?



Ans. 100,000

Doubtful Accounts (% of Sales) 



At the beginning of the current year, Truth Company had a credit balance of 260,000 in the allowance for uncollectible accounts. Based on past experience, 2% of credit sales would be uncollectible. During the current year, the entity wrote off 325,000 of uncollectible accounts. Credit sales for the year totaled 9,000,000.

Required: 1.Compute for the uncollectible accounts expense for the year. 2. Compute for the allowance for uncollectible accounts at year end. 

Ans. 1. 325,000 2. 115,000 

Notes receivable (Case #1: Interest bearing note) 

On January 1, 2018, Life Company sold a machine to Brave Company. In lieu of cash payment, Brave gave Life a 4-year, 100,000, 10% note. The note requires interest to be paid annually on December 31. The machinery has a cost of 500,000 and accumulated depreciation as of January 1, 2018 of 350,000.

Required: Compute for the following as of December 31, 2018 1. Gain or loss on sale of machinery 2. Interest income 3. Current portion of Notes receivable 4. Noncurrent portion of Notes receivable 

Ans. 1. (50,000) 2. 10,000 3. Zero 4. 100,000 

Case #2: Non interest bearing with periodic payment and with available cash price. 

On January 1, 2018, Alpha Company sold a machine to Beta Company. In lieu of cash payment, Beta gave Alpha a 3-year, 300,000 note. The machinery has a carrying amount of 300,000. The machinery has a cash price of 288,000.



The note is a non-interest bearing and payable in three equal annual instalments of 100,000 every December 31 beginning December 31, 2018.

Required: Compute for the following as of December 31, 2018: 1. Gain or loss on sale of machinery 2. Interest income 3. Current portion of Notes receivable as of Dec. 31, 2018 4. Noncurrent portion of Notes receivable as of Dec. 31, 2018 

Ans. 1. (12,000) 2. 6,000 3. 96,000 4. 98,000 

Case #3: Non-interest bearing note, One time collection of principal (Lump sum) 

On January 1, 2018,Valix Company sold a machine to Milan Company. In lieu of cash payment, Milan gave Valix a 5-year, 500,000 note. The machinery has a carrying amount of 350,000.



The note is non interest bearing and the prevailing interest for a note of this type is 10%.

Required: Compute for the following as of December 31, 2018 1. Gain or loss on sale of machinery 2. Interest income 3. Unearned interest income as of December 31, 2018 

Ans. 1. 39,950 2. 31, 045 3. 158, 505 

Case #4: Non interest bearing note with annual payments 

On January 1, 2018, Soriano Company sold a machine to Suarez Company. In lieu of cash payment, Suarez gave Soriano a 5-year, 600,000 note. The machinery has a carrying amount of 350,000.



The note is non interest bearing and the prevailing rate of interest for a note of this type is 14% and the principal amount of the note is to be paid in three equal annual instalments of 200,000 every December 31.

Required: Compute for the following as of December 31, 2018: 1. Gain or loss on sale of machinery 2. Interest income 3. Current portion of Notes receivable as of Dec. 31, 2018 4. Noncurrent portion of Notes receivable as of Dec. 31, 2018 

Ans. 1. 114,320 2. 65,005 3. 153,895 4. 175, 430 

Loans receivable 

Silangan Bank granted a loan to a borrower in the amount of 5, 000,000 on January 1, 2017. The interest rate of the loan is 10% payable annually starting December 31, 2017. The loan matures in 5 years on December 31, 2021. Silangan incurs 39,400 direct loan origination cost and 10,000 indirect loan origination cost. In addition, the bank charges the borrower an 8-point non refunding loan origination fee. The effective rate is 12%.



Required: Amount of amortization in 2018 Carrying value on December 31, 2019 Interest income in 2020

1. 2. 3.

Ans. 1. 63,535 2. 4,830,823 3. 579,699 

Impairment loss 



On January 1, 2017, Kinakaya Pa Company granted a 5 year loan to a borrower amounting to 5,000,000. The loan bears interest of 10% and is collectible every December 31. On December 31, 2018, Kinakaya Pa considers the loan impaired and that only 4,000,000 principal amount will be collected. No cash was received in 2018. The prevailing rate of interest for a loan of this type is 12%.

Assume the following independent cases: Case 1: Kinakaya Pa accrued the interest on December 31, 2018 and the entire 4,000,000 will be collected on the maturity date Case 2: Kinakaya Pa did not accrue the interest on December 31, 2018 and the 4,000,000 will be collectible as follows: January 1, 2019 1,000,000 December 31, 2019 2,000,000 December 31, 2020 1,000,000 

Required: 1. Loan impairment loss in 2018 2. Interest income in 2019 3. Carrying amount of loan, December 31, 2019 

Ans. Case 1 1. 2,494,800 2. 300,520 3. 3,305,720 

Case 2 1. 1, 355,400 2. 264,460 3. 909,060

Pledging/Hypothecating of Receivable 

On September 1 of the current year, David Company borrowed 900,000 for one year from Brayden and with a stated interest rate of 10%. As a security for the loan, David Company hypothecated its accounts receivable amounting to 1, 200,000. Brayden Bank deducted the one year interest in advance.

Question:  How much is the cash received on September 1 as a result of pledging of receivable? 



Ans. 810,000

Assignment of Accounts Receivable On December 1, 2018, Belle Company assigned specific accounts receivable totaling 200,000 as a collateral on a 150,000, 12% note from a certain bank. Belle 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 150,000 value of the note.  The December collections of assigned accounts receivable amounted to 100,000 less cash discounts of 5,000. On December 31, 2018, Belle remitted the collections to the bank in payment for the interest accrued on December 31, 2018 and the note payable. 

Required 1. Amount of cash received from the assignment of Accounts Receivable on December 1, 2018. 2. Carrying amount of Note Payable on December 31, 2018 3. Equity in assigned accounts of Belle on December 31, 2018 

Ans. 1. 142,500 2. 56,500 3. 43,500 

Factoring of Accounts Receivable (Casual Factoring) 

Way Company factored 100,000 of its accounts receivable to Truth Company for 85,000. An allowance for bad debts equal to 3,000 was previously established for the account factored. Truth Company withheld 5% of the purchase price as protection against sales returns and allowances.

Case 1: Sale of receivable is without recourse. Case 2: Sale of receivable is with recourse and the recourse obligation has an estimated fair value of 5,000 Required: For each of the above cases, determine the following: 1. Cash received 2. Cost of factoring 3. Journal entry to record the transaction 

Ans.  Case 1 1. 80,750 2. (12,000) 

Case 2 1. 80,750 2. (17,000)

Factoring of Accounts Receivable (Regular Factoring) 

Manalang Company factored 600,000 of its accounts receivable to Enriquez Company on Otober1. Control was surrendered by Manalang Company. The factor assessed a fee of 3% and retained a holdback equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted average time to maturity of the accounts receivable of 54 days. (use 265 days in the computation of the interest)

Required: 1. What is the amount of cash initially received by Manalang Company from the factoring? 2. 2. If all accounts are collected, what is the cost of factoring the accounts receivable? 

Ans. 1. 538,685 2. (31,315) 

Discounting Note Receivable (without recourse) 

On June 30, 2018, Ray Company discounted at a bank a customer 6,000,000, 6 month, 10% note receivable dated April 30, 2018.



The bank discounted the note at 12% without recourse.

Questions: What amount was received from the note discounting? 2. What amount should be recognized as loss on discounting?  1.

Ans. 1. 6,048,000 2. (52,000) 

Discounting Note Receivable (with recourse) On April 1, 2018, Truth Company discounted with recourse a 9-month, 10% note dated January 1, 2018 with face of 6,000,000. The bank discount rate is 12%. The discounting transaction is accounted for as a conditional sale with recognition of contingent liability.  On October 1, 2018, the maker dishonored the note receivable. The entity paid the bank the maturity value of the note plus protest fee of 50,000 On December 31, 2018, the entity collected the dishonored note in full plus 12% annual interest on the total amount due. 

 1. 2. 3. 4.

Questions: What amount was received from the note discounting on April 1, 2018? What amount should be recognized as loss on discounting? What is the total amount collected from the customer on December 31, 2018? If the discounting is a secured borrowing, what is the journal entry to record the transaction?

Ans. 1. 6,603,000 2. (87,000) 3. 6,695,000 

4.

Dr. Cash Dr. Interest expense Cr. Liability for note discounted Cr. Interest Income