Reference no: EM132789634

For the fiscal year ended August 31, 2019, Joliibee Inc. presented the following receivable financing transactions:

a) On June 30, 2019, j Jollibee, Inc. had an outstanding accounts receivable balance amounting to P4,000,000. The receivables were pledged to Philippine Savings Bank (PS Bank) in consideration of a 12% loan. The loan amount is 80% of the outstanding receivables. PS Bank charged the company 5% on the outstanding accounts receivable as service charge.

By the end of July, Aunt May collected P1,200,000 cash from the accounts receivable net of a P120,000 sales discount. Also, by the end of July, Aunt May accepted from customers merchandise originally invoiced at P80,000 as returns. By the end of August, Aunt May collected another P900,000 after a P50,000 sales discount. The company wrote-off P200,000 of the accounts receivable as worthless.

It was agreed-upon with PS Bank that remittances from collections will be made to the bank on a monthly basis and that the collections from customer will cover both interest and loan principal.

b) On May 1, 2019, Jollibee, Inc. discounted to PS Bank a 12-month, 10% note receivable dated January 1, 2019 and with a face value of P2,000,000. PS Bank's discount rate was at 8%. The discounting was done on a without-recourse basis, thus transferring all significant risk and rewards associated to the notes receivable to PS Bank.

Required:

Problem 1) Journal entries to reflect the transactions.

Problem 2) Determine the balances of the following accounts as at August 31, 2019:

a. Accounts receivable

b. Loans payable

c. Notes receivable

Problem 3) How much is the gain or loss to be reported in the 2020 profit or loss from derecognition of any receivables?