Reference no: EM132916334

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?