UNIVERSITY OF SAN JOSE – RECOLETOS ACCOUNTING III – FINANCIAL ACCOUNTING 1

COLLEGE OF COMMERCE QUIZ on RECEIVABLE FINANCING

ACCOUNTANCY AND FINANCE DEPARTMENT

Quiz on Receivable Financing

b. Assume that New York retained significant amount
1. On December 1, 2011, Hero Company assigned of risks and rewards of ownership and had a
P400,000 of accounts receivable to Halo Company continuing agreement on the factored receivable,
as a security for a loan of P335,000. Halo Company what amount of loss from factoring should the
charged a 2% commission on the amount of loan; company recognize?
the interest rate on the note was 10%. During a. None b. P60,000
December, Hero collected P110,000 on assigned c. P100,000 d. P160,000
notes after deducting P380 of discounts. Hero
accepted returns worth P1,350 and wrote off 5. Cross Company holds a portfolio of receivables with
assigned accounts totaling P2,980. carrying amount of P2,000,000. The company enters
into a factoring agreement with Finance Company
a. How much cash did Hero receive from Halo at the under which it transfers the portfolio via an
time of the transfer? assignment to Finance in exchange of P1,800,000 of
a. P301,500 b. P327,000 cash. All sums collected from debtors are paid by
c. P328,300 d. P335,000 Cross to a specially nominated bank account
opened by Finance Company. Cross agrees to
b. What is the carrying value of the accounts reimburse Finance Company in cash for any shortfall
receivable assigned as of December 31, 2011? between the amount collected from the receivable
a. None b. P285,290 and consideration received of P1,800,000. Once the
c.P289,620 d. P290,000 receivables have been repaid, any sums collected
above P1,800,000 less any interest on the initial
2. On December 31, 2014, Balibad Company assigned payment the date the debtors pay, will be paid to
on a non-notification basis accounts receivable of Cross.
P3,000,000 to a bank in consideration for a loan of

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80% of the receivables less a 5% service fee on the What amount of receivable should Cross Company

er as
accounts assigned. The interest rate of the loan is continue to recognize immediately after the transfer?
12% per annum. The company collected assigned a. None b. P1,800,000

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accounts of P2,000,000 and remitted the collections c.P200,000 d. P2,000,000
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to the bank in partial payment for the loan. The bank
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applied first the collection to the interest and the 6. On August 1, Michelle Corporation assigned
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balance to the principal. P20,000 of its P56,000 of accounts payable. The

finance Company advanced 90% of the assigned
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In its December 31, 2014 statement of financial accounts less P2,000 fee. Interest is 12% and
position, what amount of the note payable should payable monthly on the beginning-of the period loan
Balibad report as current liability? balance. A loan payment is remitted at the end of
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a. None b. P424,000 each month. Each payment includes principal and

c.P400,000 d. P1,024,000 interest. The amount of each loan payment equals
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the cash collected on receivables during the month

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3. On October 31, 2011, Bundle Company engaged in plus the company will prepare a check for the
the following transactions: interest on the loan balance.

Obtained a P500,000, six month loan from City If P8,000 was collected on accounts receivable
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Bank, discounted at 12%. The company pledged during August, the compound entry for the first loan
P700,000 of accounts receivable as security for the payment would include
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loan. a. debit to interest expense of P180.

b. credit to cash of P8,000
Factored P1,000,000 of accounts receivable without c. credit to accounts receivable assigned of P8,000
recourse on a non notification basis with Help d. debit to notes payable of P8,180
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Company. Help charged a factoring fee of 2% of the

amount of receivables factored and withheld 10% of 7. On April 1 of the current year, Misery Company
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the amount factored. factored receivables with a carrying value of

P85,000 for P60,000 in cash from Scrooge Lenders.
a. What is the amount received from pledged of The transfer was made without recourse. On April 1,
receivables? Misery would
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a. P700,000 b. P470,000 a. Credit deferred interest expense for P25,000

c. P500,000 d. P200,000 b. Credit factored accounts receivable for P85,000
c. Debit discount on liability for P25,000
b. What is the amount received from factoring of d. Debit loss on sale of receivables for P25,000
receivables?
a. P1,000,000 b. P900,000 8. Bruno received from a customer 12 month,
c. P880,000 d. P920,000 P375,000 note bearing annual interest of 8%. After
holding the note for 6 months, Bruno discounted the
4. On February 1, 2011, New York Corporation factored note at Super Bank at an effective interest rate at
receivables with a carrying amount of P2,000,000 to 10%.
Chicago Corporation. Chicago Corporation assesses
a finance charge of 3% and retains 5% of the a. How much did Bruno received from the Bank?
receivables as holdback. a. P371,429 b. P384,750
c. P392,858 d. P405,000
a. If the factoring is treated as a casual factoring,
what amount of loss from factoring should the b. If the discounting is treated as conditional sale,
company report in its 2011 statement of what amount of loss on notes discounted should
comprehensive income for the year 2011? Bruno recognize?
a. None b. P60,000 a. none b. P5,250
c. P100,000 d. P160,000 c. P9,750 d. P20,250
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UNIVERSITY OF SAN JOSE – RECOLETOS ACCOUNTING III – FINANCIAL ACCOUNTING 1
COLLEGE OF COMMERCE QUIZ on RECEIVABLE FINANCING
ACCOUNTANCY AND FINANCE DEPARTMENT

c. If the discounting is treated as secured borrowing, b. What is the interest expense to be recognized by
what amount of loss on discounting should Bruno Inday Company on April 1, 2014?
recognize? a. P50,000 b. P29,000
a. none b. P5,250 c.P21,000 d. P25,000
c. P9,750 d. P20,250
c. What is the amount collected by Inday Company
9. Sad Company accepted a P200,000, 90 day, 12% from the customer on December 31, 2014?
interest bearing note dated November 15, 2011 from a. P2,150,000 b. P2,224,800
a customer. On December 15, 2011, Sad Company c.P2,160,000 d. P2,214,500
discounted he note at Finance Company at 15%
discount rate. Sad Company informed the maker of 14. Pepper Company accepted from a P4,000,000, 90
the note regarding the discounting agreement. On day, 12% interest-bearing note dated August 31,
maturity date, the maker of the note did not pay the 2014. On September 30, 2014 Pepper discounted
note and as a result Finance Company charged Sad the notes with recourse at the Apex State Bank at
Company for the total amount due plus P2,000 15%. However, the proceeds were not received until
penalty fee. How much should Sad Company pay to October 1, 2014.
Finance Company, when the maker fails to pay the
note upon its maturity? The discounting with recourse is accounted for as a
a. None b. P202,000 conditional sale with recognition of contingent
c. P206,0000 d. P208,000 liability.

10. On July 31, 2011, Glade Company discounted at the a. What is the amount of discount on April 1, 2014?
bank a customer’s P600,000, 6 month, 10% note a. P104,000 b. P98,900
receivable dated May 31, 2011. The bank c.P110,000 d. P103,000

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discounted the note at 12%.

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b. What is the loss on note receivable financing?
How much is the proceeds Glade received from the a. P40,000 b. P23,000

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discounted note? c.P17,000 d. P20,000
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a. P564,000 b. P576,000
c. P604,800 d. P617,400 o.
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15. When accounts receivable are factored

11. Piggies Corporation obtained a P40,000 note from a
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customer on June 30, 2014. The note, along with a. Accounts receivable should be credited
interest at 6%, is due on June 30, 2015. On b. Payable to factor is credited
September 30, 2014, Piggies discounted the note at c. A contingent liability is ordinarily created
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Cloverdale bank. The bank’s discount rate is 10%. d. The factoring is accounted fro as a borrowing
What amount of cash did Piggies received from
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Cloverdale Bank? 16. Why would an entity sell accounts receivable to

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a. P40,600 b. P39,220 another entity?

c.P36,000 d. P36,820
a. To improve the quality of its credit granting
12. On July 1, 2014, John Lee Company sold goods in process
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exchange for P2,000,000, 8-month, noninterest- b. To limit its legal liability

bearing note receivable. At the time of sale, the c. To accelerate access to amounts collected
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note’s market rate of interest was 12%. What d. To comply with customer agreements.
amount did the company received when it
discounted the note at 10% on September 1, 2014? 17. A 90-day,15% interest-bearing note receivable is
a. P1,940,000 b. P1,928,000 sold to a bank without recourse after being held for
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c.P1,900,000 d. P1,880,000 60 days. The proceeds are calculated using a 12%

interest rate. The amount credited to note receivable
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13. On January 1, 2014, Inday Company sold land with of the discounting transaction would be
carrying amount of P1,500,000 in exchange for a 9-
month, 10% note with face value of P2,000,000. The a. The same as the cash proceeds
10% rate properly reflects the time value of money b. Less than the face value of the note
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for this type of note. c. Maturity value of the note

d. The face value of the note
On April, 1, 2014, Inday Company discounted the
note with recourse. The bank discount rate is 12%. 18. If a note receivable is discounted without recourse
The discounting is accounted for as a secured
borrowing. a. The contingent liability may be disclosed in either
a contra asset account to notes receivable or in a
On October 1, 2014, the maker dishonored the note note to the financial statements.
receivable, Inday Company paid the bank the b. Liability for note receivable discounted should be
maturity value of the note plus protest fee of credited
P10,000. c. Note receivable should be credited
d. The transaction should be accounted as a
On December 31, 2014, Inday Company collected borrowing as opposed to a sale
the dishonored note in full plus 12% annual interest
on the total amount due. 19. Which of the following is true when accounts
receivable are factored without recourse?
a. What is the amount of proceeds received by Inday
Company from the discounting of note receivable? a. The transaction may be accounted for either as
a. P2,150,000 b. P2,050,000 a secured borrowing or sale, depending upon
c.P2,021,000 d. P1,921,000 the substance of the transaction.
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UNIVERSITY OF SAN JOSE – RECOLETOS ACCOUNTING III – FINANCIAL ACCOUNTING 1
COLLEGE OF COMMERCE QUIZ on RECEIVABLE FINANCING
ACCOUNTANCY AND FINANCE DEPARTMENT

b. The accounts are used as collateral for a c. The factor assumes the risk of collectability and
promissory note issued to the factor by the absorbs any credit losses in collecting the
owner of the accounts receivable. receivables.
c. The factor assumes the risk of collectability and d. The financing cost (interest expense) should be
absorbs any credit losses in collecting the recognized ratably over the collection period of
accounts receivable. the receivables.
d. The financing cost should be recognized ratably
over the collection period of the accounts 26. Of the following conditions, which is the only one
receivable. that is not required if the transfer of receivables with
recourse is to be accounted for as a sale?
20. If financial assets are exchanged for cash and other
consideration but the transfer does not meet the a. The transfer is obligated to make a genuine
criteria for a sale, the transf120-day 12&eror and the effort to identify those receivables that are
transferee should account for the transaction as uncollectible.
b. The transferor surrenders control of the future
a. Secured borrowing economic benefits of the receivables.
b. Pledge of collateral c. The transferee cannot require the transferor to
c. Both secured borrowing and pledge of collateral repurchase the receivables.
d. Neither secured borrowing nor pledge of d. The transferor’s obligation under the recourse
collateral provisions can be reasonably estimated.

21. A note receivable bearing a reasonable interest rate 27. If a note receivable is sold to a bank with recourse,
is sold to a bank with recourse. At the date of the the note receivable discounted account should be
discounting, the note receivable discounted account reported as
should be

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a. Contra asset for the proceeds from discounting

er as
a. Decreased by the net proceeds from discounting b. Contra asset account for the face amount of the
b. Increased by the net proceeds from discounting note

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c. Increased by the face amount of the note c. Liability for the proceeds from discounting
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d. Decreased by the face amount of the note d. Liability account for the face of the note
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22. After being held for 30 days, a 120-day 12% interest

bearing note receivable discounted at a bank at 28. All but one of the following are required before a
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15%. The amount received from the bank is equal transfer of accounts receivable can be recorded as a
to sale.
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a. Maturity value less discount at 12% a. The transferred accounts receivable are beyond
b. Maturity value less discount at 15% the reach of the transferor and the creditors.
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c. Face value less discount at 12% b. The transferor has not kept effective control over
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d. Face value less discount at 15% the transferred accounts receivable through a
repurchase agreement.
23. Why would a company sell receivables to another c. The transferor maintains continuing involvement.
company? d. The transferee can pledge or sell the transferred
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accounts receivable.
a. To improve the quality of its credit granting
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process. 29. Notes receivable discounted with recourse should be

b. To limit its legal liability.
c. To accelerate access to amounts collected. a. Excluded from total receivables without
d. To comply with customer agreements. disclosure.
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b. Excluded from total receivables with disclosure

24. What is “recourse” as it relates to selling of the contingent liability.
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receivables? c. Included in total receivables without disclosure.

d. Included in total receivables with disclosure.
a. The obligation of the seller of the receivables to
pay the purchaser in case the debtor fails to pay. 30. A note receivable bearing a reasonable interest rate
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b. The obligation of the purchaser of the is sold to a bank with recourse. At the date of the
receivables to pay the seller in case the debtor discounting, the note receivable discounted account
fails to pay. should be
c. The obligation of the seller of the receivables to
pay the purchaser in case the debtor returns the a. Decreased by the net proceeds from
product related to the sale. discounting.
b. Increased by the net proceeds from discounting
d. The obligation of the purchaser of the c. Increased by the face amount of the note
receivables to pay the seller if all of the d. Decreased by the face amount of the note.
receivables are collected.

25. Which of the following is true when accounts

receivable are factored without recourse?

a. The transaction may be accounted for either as

a secured borrowing or a sale, depending upon
the substance of the transaction.
b. The receivables are used as collateral for a
promissory note issued to the factor by the
owner of the receivables.
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