RECEIVABLE FINANCING – DISCOUNTING OF NOTES RECEIVABLE
1. Determine the cash proceeds from the following discounted notes.
a. 6-month, 12% note for P6,000,000 dated June 1, 2016, discounted on August 1, 2016 at
the bank at 14%.
b. 1-year 10% note for P1,000,000, discounted at the bank at 12% after holding the note for
4 months.
c. P1,000,000 note bearing interest at 10% dated January 1, 2015. The note is payable in
two equal installments of P500,000 plus accrued interest on December 31, 2015 and
December 31, 2016. The note was discounted on July 1, 2016 at 12%.
2. Arrow Company accepted a P6,000,000, 120-day, 12% interest bearing note dated August 31,
2016. On September 30, 2016, Arrow Company discounted the note with recourse at Kara Bank
at 16%. The proceeds, however, were not received until October 1, 2016 (Use 360-days).
The discounting with recourse is accounted for as a conditional sale with the recognition of a
contingent liability.
a. The amount of cash received from discounting the note receivable
b. The amount of loss reported on the note receivable discounting
c. Prepare the entry assuming the note is paid by the maker on maturity.
d. Prepare the entry assuming the note is dishonored by the maker and Arrow Company
pays Kara Bank P6,240,000 plus protest fee and other bank charges of P10,000.
3. On August 31, 2016, War Machine Company discounted with recourse a customer’s note at its
bank at a discount rate of 12%. The note received from the customer on August 1, 2016, which is
for 90 days, has a face amount of P4,000,000 and carries a rate of 8%. The customer paid the note
to the bank on October 30, 2016, the date of maturity.
War Machine Company accounted the note discounting as a secured borrowing.
a)
b)
c)
d)
The amount of cash received from discounting the note receivable
The amount of loss reported on the note receivable discounting is
Prepare the entry assuming the note is paid by the maker on maturity.
Prepare the entry assuming the note is dishonored by the maker and Arrow Company pays
Kara Bank P4,078,904 plus protest fee and other bank charges of P10,000.