Reference no: EM132529720

Question - During 2020, Quarantino Company sold accounts receivable with recourse with a face amount of P1,000,000. The factor charged a service fee of 10% of the accounts factored and withheld 5% of the accounts factored as protection against customer returns and other adjustments. The fair value of the recourse obligation is determined to be P37,500. All of the accounts were fully collected by the factor.

On June 30, 2020, the entity also discounted a customer's note with recourse at a bank at a 10% discount rate. The note is dated May 1, 2020, has a term of 90 days, a face value of P1,500,000 and an interest rate of 9%. The entity accounted for this transaction as a secured borrowing. The customer paid the note to the bank on maturity date.

1. What amount of loss on factoring should Quarantino Company report for 2020?

a. 100,000

b. 137,500

c. 187,500

d. 150,000

2. What is the amount of proceeds from discounting the note on June 30, 2020?

a. 1,500,000.00

b. 1,520,968.75

c. 1,525,968.75

d. 1,533,750.00

3. What amount should be recognized as interest expense related to the note discounting?

a. 12,781.25

b. 3,468.75

c. 1,531.25

d. 0