Reference no: EM132912415

PROBLEM 1 - The Darwin Company is in dire need of money to pay its maturing obligations and decided to use its accounts receivable to augment its cash requirements.

On January 1, Darwin Company assigned P100,000 of accounts receivable to the FX Finance. Darwin received an advance from FX Finance of 70% of the assigned accounts receivable. The factor charge Darwin Company 2% as a service fee. As of December 31, Darwin Company collected P60,000 on the assigned accounts receivable. Darwin Company remitted the amount collected plus P5,000 interest.

June 30, Darwin sold outrightly P200,000 accounts receivable to a factor for P160,000. The said accounts receivable has a corresponding allowance for uncollectible accounts in Darwin Company's book, amounting to P20,000.

September 30, Darwin receive the proceeds of a P150,000 principal amount of a loan from a financial institution by pledging P250,000 accounts receivables. The financial institution charges Darwin Company a 2% service fee, which is deducted from the principal amount of the loan.

Requirements -

1. How much is the total financing cost during the year?

2. How much is the loss from financing during the year?

3. How will the company present its accounts receivables in the financial statements at year-end?

PROBLEM 2 - Princess EJ Corporation factors P350,000 of accounts receivable with XYZ Financing on a with recourse basis. XYZ Financing will collect the receivables. The receivables records are transferred to XYZ Financing on August 15, 202X. XYZ Financing assesses a finance charge of 2% of the amount of accounts receivable. Also, it reserves an amount equal to 5% of accounts receivable to cover probable adjustments.

Requirements -

1. What conditions must be met for a transfer of receivables through factoring with recourse?

2. Prepare the journal entry on August 15, 202X, for Princess EJ Corporation to record the conditional sale of receivables.

PROBLEM 3 - On January 1, 2021, Joy Company sold used equipment and received a non-interest bearing note requiring payment of P2,000,000 principal on December 31, 2022. The prevailing rate of interest for this type of note at the date of issuance is 10%. On January 1, 2022, to augment the company's cash requirement, Joy Company discounted the note to a financial institution at 14%. On December 31, 2022, the factor collected in full the notes receivable. The discounting is accounted for as a secured borrowing.

Requirements -

1. Prepare the necessary journal entry to record the above transactions.

2. How much is the carrying value of the notes receivable at December 31, 2021?

3. Assuming the customer failed to pay the notes on December 31, 2022, prepare the journal entry to record the dishonored note.

PROBLEM 4 - On January 1, Gabriel Company sold land with a carrying value of P1,000,000 in exchange for a 1-year, 8% note with a face value of P1,500,000. The 8% rate properly reflects the time value of money for this type of note.

On March 1, Gabriel Company discounted the note with recourse and accounted as a conditional sale. The bank discount rate is 10%. On September 1, the maker dishonored the notes receivable. In return, Gabriel Company pays the factor the maturity value of the note plus a protest fee of P5,000.

At the end of the year, Gabriel Company collected the dishonored note in full plus a 10% interest on the total amount due.

Requirements -

1. Prepare the necessary journal entry to record the above transactions.

2. Assuming that the March 1 transaction did not happen, prepare the necessary journal entry to record the above transactions.