Intermediate Accounting I

Receivables Handout 2

1. Sun Company assigned P3,000,000 of accounts receivable as collateral for a P2,000,000 loan with a bank. The
bank assessed a 4% finance fee and charged 6% interest on the note at maturity.

Questions:
a. What would be the journal entry to record the transaction?
b. What would be the journal entry for the collection of half of the receivable assigned and payment of half of the
loan with interest for the first month?

2. Prias Company assigned P4,000,000 of accounts receivable as collateral for a P2,000,000 6% loan with a bank.
The entity also paid finance fee of 5% on the transaction upfront.

Question:
a. What amount should be recorded as gain or loss on the transfer of accounts receivable?
b. What would be the journal entry to record the transaction?

3. On December 1, 2016, Bamboo Company assigned specific accounts receivable totalling P4,000,000 as a
collateral on a P3,000,000 12% note from a certain bank. The entity will continue to collect the assigned accounts
receivable. In addition to the interest on the note, the bank also charged 5% finance fee deducted in advance on
the P3,000,000 value of the note. The December collections of assigned accounts receivable amounted to
P2,000,000 less cash discounts of P100,000. On December 31, 2016, the entity remitted the collections to the
bank in payment for the interest accrued on December 31, 2016 and the note payable. The entity accepted sales
returns of P150,000 on the assigned accounts and wrote-off assigned accounts of P200,000.

Questions:
a. What amount of cash was received from the assignment of accounts receivable on December 1, 2016?
b. What is the carrying amount of the note payable on December 31, 2016?
c. What is the balance of accounts receivable-assigned on December 31, 2016?
d. What amount should be disclosed as the equity of Bamboo Company in assigned accounts on December 31,
2016?

4. Athena Company factored P6,000,000 of accounts receivable to a finance entity at the end of current year.
Control was surrendered by Athena 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.

Questions:
a. What is the amount of cash initially received from the factoring.
b. If all accounts are collected, what is the cost of factoring the accounts receivable?

5. Pafall Company factored P750,000 of accounts receivable at year-end. Control was surrendered. The factor
accepted accounts receivable subject to recourse for non-payment. The factor assessed a fee of 2% and retained
a holdback equal to 4% of the accounts receivable. In addition, the factor charged 12% interest computed on a
weighted-average time to maturity of fifty-one days. The fair value of the recourse obligation is P15,000.

Questions:
a. What is the amount of cash initially received from factoring?
b. Assuming all accounts receivable are collected, what is the cost of factoring the accounts receivable?

6. Maria Company sold accounts receivable without recourse for P5,300,000. The entity received P5,000,000 cash
immediately from the factor. The remaining P300,000 will be received once the factor verifies that none of the
accounts receivable is in dispute.

The accounts receivable had a face amount of P6,000,000. The entity had previously established an allowance
for bad debts of P250,000 in connection with such accounts.

Question:
a. What amount of loss on factoring should be recognized?
b. What is the carrying amount of accounts receivable?

7. Shell Company sold P5,800,000 in accounts receivable for cash of 5,000,000. The factor withheld 10% of the
cash proceeds to allow for possible customer returns and other adjustments.

An allowance for bad debts of P600,000 had previously been established by the entity in relation to these
accounts.

Question:
a. What is the loss on factoring that should be recognized?
b. What is the carrying amount of accounts receivable?
8. Volcano Company factored without recourse P2,000,000 of accounts receivable with a bank. The finance charge
is 3% and 5% was retained to cover sales discounts, sales returns and sales allowances.

Questions:
a. What amount of cash was received on the sale of accounts receivable?
b. What amount should be recognized as loss on factoring?

9. Sunflower Company sold accounts receivable without recourse with face amount of P6,000,000. The factor
charged 15% commission on all accounts receivable factored and withheld 10% of the accounts factored as
protection against customer returns and other adjustments.

The entity had previously established and allowance for doubtful accounts of P200,000 of these accounts.

By year-end, the entity collected the factor’s holdback there being no customer returns and other adjustments.

Question:
a. What amount of cash was initially received from factoring?
b. What is the loss on factoring?

10. Walnut Corporation factored receivables with a carrying amount of P2,000,000 to Chicago Corporation. Walnut
Corporation assesses a finance charge of 3% of the receivables and retains 5% of the receivables.

Questions:
a. If the factoring is treated as sale, what amount of loss from sale should the company report in its 2019
statement of comprehensive income for the year 2019?
b. Assume that Walnut Company retained significant amount of risks and rewards of ownership and had a
continuing involvement on the factored financial asset, what amount of loss from factoring should the
company recognize?

11. Blue Company owns a portfolio of loans with a carrying amount of P5,000,000 that yields 8% interest income. The
loans are accounted as loans and receivables at amortized cost.

Blue Company sells the entire portfolio to a bank for P5,250,000 without any recourse via a legal assignment.
However, the company agrees to service portfolio over the remainder of its life for no additional payment and
estimates that the amount that would fairly compensate it for servicing the portfolio is P200,000.

Question:
a. What is the amount of gain or loss on the transfer of financial asset?
b. What is the journal entry to recognize the transfer of financial asset?