Various Notes Receivable Transactions
The Notes Receivable account of Bunsoy Co. has a debit balance of P239,200 on December 31, 2018.
There was no balance at the beginning of the year. Your analysis on the account reveals the following:
1. Notes amounting to P845,000 were received from customer during the year.
2. Notes of P416, 000 were collected on due dates and notes amounting to P221,000 were discounted at
the Agressive Bank. The notes receivable account was credited for the notes discounted.
3. Of the P221,000 notes discounted, P104,000 was paid on maturity date while a note for P31,200 was
dishonered and was charged back to Notes Receivable account.
4. Cash of P33,000 was received as partial payment on notes not yet due. The amount received was
credited to Liability on Partial Payments account.
5. A note for P50,000 was pledge as collateral for a bank loan.
6. Included in the company's cash account balance is three month note from an officer amounting to
P8,000 which is over a month due.
Assuming that Bunsoy Co. will use a notes discounted account, the adjusted balance of the Notes
Receivable account on December 31, 2018, is
A. P260,800
B. P323,200
C. 364,800
D. 175,000
SOLUTION
Unadjusted Balance
(P845,00 - P416,000 - P221,000 + 31,200) P239,200
Partial collection recorded as liability (P33,000)
Notes Receivable discounted still outstanding
(P221,000 - P104, 000 - 31,200) P85,800
Dishonered Notes (P31,200)
Adjusted Balance P260,800
Discounting of Notes Receivable
During your audit of Forever Company for the year ended of December 31, 2018, you find the following
account
NOTES RECEIVABLE
Date DEBIT CREDIT
Sept 1 Cornea, 20% due in 3 months P 80,000
Oct 1 Hunk Co., 24% due in 2 months 300,000
1 Discounted Cornea note at 25% P 80,000
Nov 1 Valerie, 24% due in 13 months 600,000
30 Cellular Co., no interest due in
one year 500,000
30 Discounted Cellular note at 18% 500,000
Dec 1 Tictic, 18% due in 5 months 900,000
1 O. Reyes, President, 12%
due in 3 months
(for cash loan given to O. Reyes) 1,200,000
All notes are trade notes unless otherwise specified. The Cornea note was paid on December 1 as per
notification received from the bank. The Hunk Co. note was dishonored on the due date but the legal
department has assured the management of its full collectibility. The company, with your concurrence
will treat the discounting as a conditional sale of notes receivable.
1. At what amount on the current assets section of the December 31, 2018, statement of financial
position will the Notes Receivable-trade be carried
A. P1,500,000
B. P1,800,000
C. P2,400,000
D. P2,080,000
2. What amount of loss on notes receivable discounting should be reported in the 2018 income
statement of the company?
A. P90,500
B. P90,833
C. P90,000
D. 0
3. Based on the ledger account presented, what amount of interest income should be accrued at
December 31, 2018
A. P55,500
B. P61,500
C. P49,500
D. 67,500
1. Valerie P 600,000
Tictic 900,000
Total notes receivable trade, December 31, 2018 P 1,500,000
2. Net Proceeds:
Principal P 80,000
Interest (P80,000 x 20% x 3/12) 4,000
Maturity Value 84,000
Discount (P84,000 x 25% x 2/12) (3500) P 80,500
Book Value:
Principal P 80,000
Accrued interest receivable
(P80,000 x 20% x 1/2) 1,333 81,333
Loss on discounting of Cornea notes P 833
Principal/Maturity Value P 500,000
Discount (P500,000 x 18% x 1 year) (90,000)
Net Proceeds 410,000
Book Value 500,000
Loss on Discounting of
Cellular note P 90,000
Total Loss on Discounting (833+ 90,000) P 90,833
3. Hunk (300,000 x 24% x 3/12) P18,000
Valerie (600,000 x 24% x 2/12) 24,000
Tictic (900,000 x 18% x 1/12) 13,500
O. Reyes (P1,200,000 x 12% x 1/12) 12,000
Total acrued interest receivable, December 31, 2018 P67,500
