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 300,000
TOTAL 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 200,000

Trade discount 10, 20
Sales discount 2/15, n/30
Invoice price of merchandise returned on Jan. 8 10,000
Date of Sale January 5, 2019
Date collected 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 1 280,000

Accounts written of as uncollectible 230,000
Accounts receivable on December 31 2,700,000
Uncollectible accounts recovery 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:
1. Amount of amortization in 2018
2. Carrying value on December 31, 2019
3. Interest income in 2020
 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:
1. What amount was received from the note
discounting?
2. What amount should be recognized as loss on
discounting?
 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.

 Questions:
1. What amount was received from the note discounting on April 1, 2018?
2. What amount should be recognized as loss on discounting?
3. What is the total amount collected from the customer on December
31, 2018?
4. 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