Reference no: EM132743740

Problem - During 2011, Mamama Company required additional cash for its operations and used its accounts receivable to raise such needed cash as follows:

A. On December 1, 2010, Mamama Company assigned on a non-notification basis accounts receivable of P5,000,000 to a bank in consideration for a loan of 90% of the receivables less a 5% service fee on the accounts assigned. Mamama signed a note for the bank loan. On December 31, 2010, Mamama collected assigned accounts of P3,000,000 less discount of P200,000. Mamama remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The agreed interest is 1% per month on the loan balance.

B. Mamama Company factored P6,000,000 of accounts receivable to a finance entity on October 1, 2010 subject to recourse for non-payment. The factor assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, the factor charged15% interest computed on a weighted average time to maturity of the accounts receivable of 54 days. The fair value of the recourse obligation is P9,000. On December 31, 2010, the factored accounts were fully collected and the amount withheld by the factor was remitted in full to Mamama.

C. Mamama Company received an advance of P300,000 from Union Bank by pledging P360,000 of accounts receivable. Mamama also signed a note for this bank loan.

D. On June 30, 2010, Mamama Company discounted at a bank, a customer's P600,000, 6-month, 10% note receivable dated April 30, 2010. The bank discounted the note at 12% on the same date. The note discounting was with recourse and was treated as secured borrowing.

Required - Based on the above and the result of your audit, answer the following questions:

1. What amount of cash was initially received by Mamama from the assignment of its accounts receivable?

2. What is the equity in the assigned accounts that Mamama must disclose in its December 31, 2010 notes to financial statements?

3. What amount will Mamama report as total notes payable relating to its assignment transaction in its December 31, 2010 statement of financial position?