Question

Tt problem 8-14 (IAA) necember 1, 2019, Solvent Company assignea on 0n nt receivable totaling P5,000,000 as collatity will accoun 000 12% note from a certain bank. The en d specific Puosinue to collect the assigned accounts receiva tity continue ivable. edition to the interest on the note, the bank also chargea In 5% finance fee deducted in advance on the assigne also charged accounts. December collections of assigned acounts receiva gmounted to P2,000,000 less cash discount of P200,000. December 31, 2019, the entity remitted the collections the bank in payment for the interest accrued on December 81, 2019 and the note payable. accounts receivable The entity accepted sales returns ofP100.000 on the assigned accounts and wrote off assigned accounts of P300,000 1. What amount of cash was received from the assignment of accounts receivable on December 1, 2019? a. 4,000,000 b. 3,800,000 c. 4,750,000 d. 3,750,000 2. What is the carrying amount of note payable on December 31, 2019? a. 1,840,000 b. 2,140,000 c. 2,240,000 d. 2,200,000 3. What amount should be disclosed as the equity ofSolvent Company in assigned accounts on December 31, 2019? a. 260,000 b. 400,000 С. 360,000 d. 760,000 221

Answer 1

1. The amount of cash received from assignment of accounts receivables as on December 31,2019 is P 3,750,000 .

Working Notes:

Cash Received on December 1 , 2019 = Note payable received (Less) Finance fee deducted in advance.

= P 4,000,000 - P (5,000,000*5%)

= P 3,750,000

No other cash was received in the month of December , 2019. Therefore, total cash received from assignment on December 31 , 2019 is P 3,750,000.

2. The carrying amount of Note Payable on December 31 , 2019 is P 2,240,000

Working Notes :

Carrying amount of note payable = Notes received (Less) Principal Payment.

= P 4,000,000 - [ (Collections - cash discount) Less  (one month interest on note payable)]

= P 4,000,0000 - [ (2,000,000 - 200,000) - ( 4,000,000 * 12% * 1/12)]

= P 4,000,000 - P 1,760,000

= P 2,240,000

3. The amount that is disclosed as Equity of Solvent Company in assigned accounts on December 31, 2019 P 360,000

Working Notes :

Accounts Receivable assigned on December 1,2019	P 5,000,000
Less :
Collections less cash discount allowed	(1,800,000)
Sales Discount	(200,000)
Sales Returns	(100,000)
Assigned accounts written off during the month	(300,000)
Balance of assigned accounts receivable	P 2,600,000
Less : Carrying amount of Notes payable	( 2,240,000)
Equity in assigned accounts on December 31,2019	P 360,000