(03C) Receivable Financing Quiz ANSWER KEY

ADAMSON UNIVERSITY
INTERMEDIATE ACCOUNTING 1
RECEIVABLE FINANCING – QUIZ
1. A form of receivable financing which is equivalent to an absolute sale of accounts
receivable is
a. pledging
b. assignment
c. factoring
d. discounting
2. It is a financing arrangement that is usually done on either notification or non-

notification basis.
a. Pledging
b. Assignment
c. Factoring
d. Discounting
3. An entity factored its accounts receivable without recourse with a bank. The entity
received cash as a result of this transaction which is best described as:
a. Bank loan collateralized by the entity’s accounts receivable.
b. Bank loan to be repaid by the proceeds from the entity’s accounts receivable.
c. Sale of the entity’s accounts receivable to the bank; risk of uncollectible accounts
retained by the entity.
d. Sale of the entity’s accounts receivable to the bank; risk of uncollectible accounts
transferred to the bank.
4. After being held for 30 days, a 120-day 12% notes receivable was discounted at
a bank at 15%. The amount received from the bank is equal to:
a. maturity value less discount at 12%
b. maturity value less discount at 15%
c. face value less discount at 12%
d. face value less discount at 15%
USE THE FOLLOWING INFORMATION FOR NOS. 5 TO 8
On December 1, 2019, Sharp Company assigned specific accounts receivable

totaling P2,000,000 as collateral on a P1,500,000 12% note from Equity Bank.
Sharp will continue to collect the assigned accounts receivable. In addition to the
interest on the note, the bank also charged a 5% finance fee deducted in advance
on the P1,500,000 value of the note. The December collections of assigned
accounts receivable amounted to P1,000,000 less cash discount of P50,000. On
December 31, 2019, Sharp Company remitted the collections to Equity Bank in
payment for the interest accrued as at December 31, 2019 and the notes payable.
5. What amount of cash was received from the assignment of accounts receivable
on December 1, 2019?
a. P2,000,000
b. P1,900,000
c. P1,500,000
d. P1,425,000
To record the assignment of accounts receivable

Accounts Receivable – Assigned 2,000,000
Accounts Receivable 2,000,000
To record the loan

Cash 1,425,000
Finance Fee 75,000
Notes Payable 1,500,000
Finance fee is 5% of P1,500,000, or P75,000, deducted in advance. Hence, the
loan proceeds is P1,425,000 (P1,500,000 – 75,000)
6. In the journal entry to record the loan proceeds, Sharp shall

a. Debit “Accounts Receivable – Assigned” P1,500,000
b. Credit “Accounts Receivable” P1,500,000
c. Debit “Cash” P1,500,000
d. Credit “Notes Payable” P1,500,000
Refer to the journal entry to record the loan
7. In the journal entry to record the collection of assigned accounts, Sharp shall
a. Debit “Notes Payable” P950,000
b. Credit “Accounts Receivable” P1,000,000
c. Debit “Sales Discount” P50,000
d. Credit “Interest Income” P15,000
To record the December collection of assigned accounts receivable

Cash 950,000
Sales Discount 50,000
Accounts Receivable - Assigned 1,000,000
8. What amount should be disclosed as the equity of Sharp Company in assigned

accounts receivable on December 31, 2019?
a. P270,000
b. P435,000
c. P450,000
d. P500,000
To record remittance of collection in payment of one-month interest and

principal
Notes Payable 935,000
Interest Expense 15,000
Cash 950,000
Interest Expense is computed as P1,500,000 X 12% X 1/12, or P15,000
Amount charged to Notes Payable is computed as P950,000 (the collection of
assigned accounts) MINUS the Interest Expense of P15,000, or P935,000
At this point, general ledger or T-account of Accounts Receivable – Assigned and

Notes Payable will show
Accounts Receivable - Assigned

Assignment 2,000,000 Collection 1,000,000
Notes Payable
Remittance 935,000 Loan 1,500,000
Thus, to compute for the equity in assigned accounts receivable:

Accounts Receivable – Assigned 1,000,000
Less: Notes Payable 565,000
--------------
Equity in assigned accounts receivable 435,000
USE THE FOLLOWING INFORMATION FOR NO. 9 AND 10
At the beginning of the current year, Manly Company sold P5,800,000 in accounts
receivable for cash of P5,000,000. The factor withheld 10% of the cash proceeds
to allow for possible customer returns and other adjustments. An allowance for
doubtful accounts of P600,000 had been previously established by Manly in
relation to these accounts.
9. What was the loss on factoring recognized by Manly Company?

a. P200,000
b. P500,000
c. P700,000
d. P800,000
To record sale of the accounts receivable

Cash 4,500,000
Allowance for Doubtful Accounts 600,000
Factor’s Holdback 500,000
Loss on Factoring 200,000
Accounts Receivable 5,800,000
Take note that the Net Realizable value of the Accounts Receivable sold is
P5,200,000 (P5,800,000 – 600,000) in exchange for Cash of only P5,000,000
(before deducting the Factor’s Holdback of P500,000)
10. The journal entry to record the sale of the accounts receivable will show a
debit to Cash in the amount of
a. P5,800,000
b. P5,000,000
c. P4,500,000
d. P4,000,000
P5,000,000 Cash MINUS Factor’s Holdback of P 500,000 (P5,000,000 X 10%),

or P4,500,000

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ADAMSON UNIVERSITY

2. It is a financing arrangement that is usually done on either notification or non-

USE THE FOLLOWING INFORMATION FOR NOS. 5 TO 8

On December 1, 2019, Sharp Company assigned specific accounts receivable

To record the assignment of accounts receivable

To record the loan

6. In the journal entry to record the loan proceeds, Sharp shall

To record the December collection of assigned accounts receivable

8. What amount should be disclosed as the equity of Sharp Company in assigned

To record remittance of collection in payment of one-month interest and

At this point, general ledger or T-account of Accounts Receivable – Assigned and

Accounts Receivable - Assigned

Thus, to compute for the equity in assigned accounts receivable:

USE THE FOLLOWING INFORMATION FOR NO. 9 AND 10

9. What was the loss on factoring recognized by Manly Company?

To record sale of the accounts receivable

P5,000,000 Cash MINUS Factor’s Holdback of P 500,000 (P5,000,000 X 10%),

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