On April 1, 2020, Diluc Company discounted with rcourse a 9-month, 10% note dated January 1, 2020 with a face value 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, 2020, 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, 2020, the entity collected the dishonored note in full plus 12% annual interest on the total amount due.

Question 7

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What is the amount of the cash received/net proceeds from the note discounting on April 1, 2020?

a.

6,150,000

b.

5,963,000

c.

6,063,000

d.

6,450,000

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Question 8

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What amount should be recognized as loss on note discounting?

a.

63,000

b.

450,000

c.

87,000

d.

387,000

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Question 9

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What is the total amount collected from the customer on December 31, 2020?

a.

6,500,000

b.

6,662,500

c.

6,695,000

d.

6,450,000

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If the discounting is a secured borrowing, what is included in the journal entry to record the transaction?

a.

Cr. Liability for note discounted P6,063,000

b.

Dr. Interest expense P87,000

c.

Cr. Interest income P63,000

d.

Dr. Loss on discounting P87,000