Maturity value= Principal plus intereSI for the "full" term ofthe 'Y
Interest= Principal times interest rate times the full term ofthe ~ 2. What is the loss on note receivable discounting?
Discount= Maturity value times discount rate x discount penOd. . llote, a. 50,000
b. 40,000
Problem 13-10 (AICPAAdapted) c. 52,000
On July 1, 2011, Lee Company sold goods in exch d. 12,000
P2,000,000, 8-month, ooninterest-bearlng note receivabfge for
time of the sale, the note's market rate of interest was 12;· At the Solution 13-11
amount did Lee receive when it discounted the note at ;- ~hat
Question 1 Answer c
September I, 20 II? OYo on
Principal 1,000,000
a. 1,940,000 Add : Interest (1 ,000,000 x 8% x 6/12) 40,000
b. 1,938,000
C. 1,900,000 Maturity value 1,040,000
d. 1,880,000 Less: Discount {1,040,000 x 10% x 6/12) 52,000
Net proceeds 988,000
Solution 13-10 Answer c
Principal 2,000,000 Question 2 Answer d
Less: Discount (2,000,000 x 10% x 6/12)
Net proceeds
-
100,000
1,900,000
Net proceeds
Carrying amount of note receivable - equal to principal
988,000
(1,000,000)
The note is noninterest-bearing. Therefore, the maturity value is equal Loss on note receivable discounting ( 12,000)
to the principal or face value of the note.
Problem 13-12 (AICPAAdapted)
The note is dated July 1, 2011 and it was discounted on September l,
2011 and therefore, 2 months already expired. Since the term ofthe On June 30, 2011, Ray Company discounted at the bank a customer's
note is 8 months, the unexpired term is 6 months. P6,000,000, 6-month, 10% note receivable dated April 30, 2011 . The
bank discounted the note at 12% without recourse.
Problem 13-11 (AICPAAdapted) I. What is the amount received from the note receivable discounting?
Apex Company accepted from a customer P1,000,000 face amoun~ a. 5,640,000
6-month, 8% note dated April 15, 2011. On the same date Apex b. 5,760,000
discounted the note without recourse at Union Bank at a 10% discount C. 6,048,000
rate. d. 6,174,000
1. What amount ofcash was received by Apex from the discounting? 2. What is the loss on note receivable discounting?
a. 1,040,000 a. 252,000
b. 990,000 b. 152,000
C. 988,QQQ C. 52,000
d. 972,000 d. 48,000
232 233
Solution 13-12
50 /ution 13-13 Answerd
Question J Answer c principa l
)00,000
Principal 6,00Q Oo Add : Interest (500,000 x 10%)
Add: Interest (6,000,000 x 10% x 6112 ) ~ Maturity value
50,000
550,,000
Maturity value . 6,300 00() Less : Discount (550,000 x 12% x 6/12) 33,000
Less: Discount (6,300,000 x 12% x 4/ 12) ~
Net proceeds 517,000
Net proceeds 6,048 ooo
~ Only the balance of P500,000 on December 31, 20 IO was
The note is datedApri130, 2011 an? it was dis~o~nted June 30, 201 discounted because the first installment of PS00,000 was paid on
Therefore, two months already expired. The ongmaJ tenn is 6 m ~ said date.
and accordingly, the unexpired tenn is 4 months. ont
This balance of P500,000 matures on December 31 , 20 I 1 and
Question 2 Answer c therefore the corresponding interest is for one year from December
31, 20 I? to December 31, 201 I. However, the discount period is
Principal 6,000,000
Accrued interest receivable only 6 months because the note was discounted on July 1, 2011 .
(6,000,000 X JO% X 2/12) 100,000
Problem 13-14 (AICPAAdapted)
Carrying amount of note receivable 6,100,000
Rand Company accepted from a customer a P4,000,000,' 90-day, 12%
Net proceeds interest-bearing note dated August 31, 20 I I. On September 30, 2011,
6,048,000
Carrying amount of note receivable (6,100,000) Rand discounted the note with recourse at the Apex State Bank at
Loss on note receivable discounting 15%. However, the proceeds were not received until October I, 20 I I.
( 52,000)
The discounting with recourse is accounted for as a conditional sale
Problem '13-13 (AICPAAdapted)
with recognition ofa contingent liability.
On July 1,2010, Kay Company so!d equipment to Mando Comp~y I. What is the amount received from the discounting ofnote receivable?
for Pl,000,000. Kay accepted a 10% note receivable for the entlfe
sales price. This note is payable in two equal installments ofPS00,000 a. 4,017,000
plus accrued interest on December 31,201 Oand December 31, 2011. b. 4, I20,000
c. 4, l 03,000
On July 1, 2011, Kay discounted the note at a bank at an interest rate
ofl2%. d. 3,965,500
2. What is the loss on note receivable discounting?
is ~e amount received by Kay Company from the discounting of
Whatreceivable?
note
a. 40,000
a. 484,000 b. 23,000
b. 493,500 c. I 7,000
C. 503,500
d. 20,000
d. 517>000
234 23:i
I
1
. 1------
/ Solution 13-14 problem 13-16 (IAA)
Question 1Answer a On August 31, 2011, Sunflower Company discounted with recourse a
4,000,000 customer's note at its bank at discount rate of 15%. The note was
Principal
·Interest (4,000,000 x 12% x 90/360)
Maturity value
---
12
4,120,000
received from the customer on August I, 2011, is for 90 days, has a
face value of PS,000,000, and carries an interest rate of 12%. The
Less: Discount (4,120,000 x 15% x 60/360) ~ customer paid the note to the bank on October 30, 2011, the date of
4,017 maturity.
Net proceeds
Ifthe discounting is accounted for as a secured borrowing, what is the
The note is dated August 31, 2011 and it was discounted on
interest expense to be recognized on August 31, 2011?
September 30, 2011 and therefore, 30 days already expired
Accordingly, the discount period or unexpired term is 60 days. · a. 50,000
b. 21,250
Question 2 Answer b c. 28,750
Principal 4,000,000 d. 25,000
Accrued interest receivable (4,000,000 x 12% x jQ/360) 40,000
Carcying amount of note receivable 4,040,000 Solution 13-16 Answer c
Principal 5,000,000
Net proceeds 4,017,000 150,000
Carrying amount of note receivable Interest (5,000,000 x 12% x 90/360)
(4,040,00o;
Maturity value 5,150,000
Loss on note receivable discounting ( 23,000) 128,750
Discount (5,150,000 x 15% x 60/360)
Problem 13-15 (AICPAAdapted) .Net proceeds 5,021,250
On November 1, 2011, Davis Company discounted with recourse at 5,000,000
10% a one-year, noninterest bearing, P2,050,000 note rece~vable Principal
Accrued interest receivable (5,000,000 x 12% x 30/360) 50,000
maturing on January 31, 2012. The discounting ofthe note receivable
is accounted for as a conditional sale with recognition of a continge~t Carrying amount of note receivable 5,050,000
liability. What amount of contingent liability for this note must Davis
disclose in its financial statements for the year ended December 31,
2011? 5,021,250
Net proceeds
Carrying amount of note receivable (5,050,000)
.a. 2,050,000
b. 2,000,000 ( 28 1750)
Interest expense
c. 2,033,333
d. 0
Solution 13-J 5 Answer a
Thenote
the conting~nt liabi!ity
receivable is.equal to the principal or face valu.e of
discounted.
236 237
Problem 13-17 (IAA) 50 /ut ion 13-17
On January 1, 2011, Cactus Company sold land with canying amount Question I Annver b
of P 1,500,000 in exchange for a 9-month, 10% note with face value
of P2,000,000 . The 10% rate properly reflects the time value of principal 2,000,000
money for this type of note. Interest (2 ,000,000 x 10% x-9/12) 150,000
Maturity value 2,150,000
On April 1, 2011, Cactus Company discounted the note with
Discount (2 , 150,000x 12%x6/12) ( 129,000)
recourse. The bank discount rate is 12%. The discounting transaction
is accounted for as a secured borrowing. Net proceeds 2,021,000
On October 1, 20J 1, the maker dishonored the note receivable. Question 2 Answer b
Cactus Company paid the bank thematurityvalueofthe note plus
protest fee of PI0,000. Principal 2,000,000
Accrued i ntcrcst receivable (2 ,000,000 x 10% x 3/ 12) 50,000
On December 31, 2011, Cactus Company collected the dishonored Carrying amount of note receivable 2,050,000
note in ful) plus 12% annual interest on the total amount due.
Net proceeds 2,021 ,000
I. What is the amount of proceeds received by Cactus Company Carrying amount of note receivable (2,050,000)
from the discounting ofnote receivable?
Interest expense ( 29 ,000)
a. 2,150,000
b. 2,021,000 Question 3 Answer h
C. 2,050,000
d. 1,921,000 Maturit y value 2,150,000
Pro te st fee 10,000
2. What is the interest expense to be recognized by Cactus Company Total amount due 2,160,000
on April I, 2011? Interest (2,160,000x 12%x3/12) 64,800
a. 50,000 Amount collected from customer 2,224,800
b. 29,000
C. 21,000
d. 25,000
3. What is the amount co11ected by Cactus Company fr9m the
customer on December 31, 2011?
a. 2,150,000
b. 2,224,800
c. 2, l60,000
d. 2,214,500
., '2Q
239
Problem 13-18(AICPAAdapted)
?n August I, 2011, Vann Company's PS,0_00,000 one-year
interest-bearing note due July 31, 2012, was discounted at Ho ' non.
problem 13-19 (AICPAAdapted)
Brooke Con:ipany discounted its own P5,000,000 one-year note at a
bank, at a d1scou~t rate of 12%, when the prime rate was 10%. In
•
Bank at 10.8%. Vann uses the straight line method of arn:~t~aci
21 porting the note m Brooke's statement of financial position prior to
discount. What amount should Vann ~eport _f?r note payable ~ ~g
December 31, 2011 ·statement of financial pos1tton? •nits :aturity, what rate should Brooke use for the recordins of interest
expense?
a. 5,000,000 a. 10.0%
b. 4,775,000 b. 10.7%
C, 4,685,000 c. 12.0%
d. 4,460,000· d. 13.6%
Solution 13-18 Answer c Solution 13-19 An~wer d
Note payable Note payable
Less: Discount (5,000,000 x 10.8%) Discount (5 ,000,000 x 12%) 5,000,000
Net proceeds ( 600.000)
4,460,000 Net proceeds
4,400,000
Actually, Vann Company borrowed from the bank and issued a note Effective interest rate = Discount/ Net proceeds
for the loan. Thus, this is a case of "discounting own note". If the
transaction is recorded, the pertinent entries for2011 are:
= 600,000 / 4,400,000
= 13.6%
I . To record the loan on August 1, 2011 :
Cash 4,460,000
Discount on note payable •
540,000
Note payable 5,000,000
2. To amortize the discount as interest expense for 5 months from
August 1 to December 31, 2011 :
Interest expense (540,000 ~ 5/12) 225,000
Discount on note payable 225,000
The ~ecember 31, 2011 statement of financial position wpuld show
the discount on note payable as adeduction from note payable as follows:
Note payable s000 000
Discount on note payable (540,000 - ·225,000) ( 31 s:ooO)
1
Catryins amount • December 3I , 201 1 4,685 .~
240 241
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