14. Otter Company sold receivables with recourse for

P530,000. Otter received P500,000 cash immediately from

the factor. The remaining P30,000 will be received once the

factor verifies that none of the receivables is in dispute.

Control was surrendered by Otter.

The receivables had a face amount of P600,000; Otter had

previously established an Allowance for Bad Debts of

P25,000 in connection with these receivables.

The fair value of the recourse obligation is P13,000.

The loss on factoring to be recognized by Otter Company is

a. 88,000 c. 45,000

b. 58,000 d. 83,000

Numbers 15-17

Thunder Company factored P5,000,000 of accounts receivable.

Control was surrendered by Thunder. The transaction met the

criteria to be accounted for as sale but subject to recourse for

nonpayment. The fair value of the recourse obligation is

P250,000.

The finance company assessed a fee of 6% and retained a

holdback equal to 10% of the accounts receivable. In addition,

the finance company charged 12% interest computed on a

weighted average time to maturity of the accounts receivable

for 30 days.

15. What amount was initially received from the factoring of

accounts receivable?

a. 4,500,000 c. 4,700,685

b. 4,200,000 d. 4,150,685

16. What total amount should be recognized initially as loss on

factoring?

a. 349,315 c. 755,000

b. 849,315 d. 599,315

17. What amount should be reported as loss on factoring

assuming the accounts are fully collected by the factor?

a. 349,315 c. 500,000

b. 300,000 d. 299,315

Discounting

18. If a note receivable is discounted without recourse

a. Note receivable should be credited

b. Liability for note receivable discounted should be

credited

c. The transaction should be accounted for as a secured

borrowing as opposed to a sale

d. The contingent liability may be disclosed in either a

contra receivable or a note to the FS

Numbers 19-21

On July 31, 2020, Clear Company discounted at the bank a

customer's P600,000 interest-bearing note, 6-month, 10% note

receivable dated May 31, 2020. The bank discounted the note

at 12%.

19. The net proceeds from this discounted note is

a. 564,000 c. 604,800

b. 576,000 d. 617,400

20. How much gain or loss should be recognized if the

discounting is without recourse?

a. 25,200 c. 22,500

b. 5,200 d. 0

21. How much gain or loss should be recognized if the

discounting is with recourse?

Conditional Sale Secured Borrowing

a. 25,200 25,200

b. 25,200 5,200

c. 0 5,200

d. 5,200 0

22. A loss on discounting of notes receivable is recorded when

of discounting is made.

a. With recourse

b. Without recourse

c. A secured borrowing

d. With or without recourse

23. A note receivable bearing a reasonable interest rate is sold

to a bank with recourse. The notes receivable discounted

account should be reported as a

a. Contra-asset account for the proceeds from the

discounting transactions

b. Contra-asset account for the face amount of the note

c. Liability account for the proceeds from the discounting

transactions

d. Liability account for the face amount of the note

Note Dishonored

Numbers 24-26

On April 1, 2025, Vivien Company discounted with recourse a 9-

month, 10% note dated January 1, 2025 with face of P6,000,000.

The bank discount rate is 12%. The discounting transaction is

accounted for as a conditional sale with recognition of

contingent liability.

On October 1, 2025, the maker dishonored the note receivable.

The entity paid the bank the maturity value of the note plus

protest fee of P50,000.

On December 31, 2025, the entity collected the dishonored note

in full plus 12% annual interest on the total amount due.

24. What amount was received form the note discounting on

April 1, 2025?

a. 6,063,000 c. 6,150,000

b. 6,450,000 d. 5,963,000

25. What amount should be recognized as loss on note

discounting?

a. 450,000 c. 87,000

b. 387,000 d. 63,000

26. What is the total amount collected from the customer on

December 31, 2025?

a. 6,450,000 c. 6,695,000

b. 6,500,000 d. 6,662,500