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Pro Problem 8-18 (LAA) During the second year of operations, Fauna Company four itself in financial difficulties. The entity decided to use accounts receivable as a means of obtaining cash to continue operations. On July 1, 2020, the entity sold P1,500,000 of accounts receivable for cash proceeds of P1, 390,000. No bad debt allowance was associated with these accounts. On December 15, 2020, the entity assigned the remainder of the accounts receivable, P5,000,000 as of that date, as collateral on a P2,500,000, 12% annual interest rate loan, The entity received P2,500,000 less a 2% finance charge. None of the assigned accounts had been collected by the end of the year. Allowance for bad debts before adjustment, 12/31/2020 100,000 cr Estimated uncollectible, 12/31/2020 10% of accounts receivable Accounts receivable not including factored and assigned accounts, 12/31/2020 08 21,000,000 Accounts receivable - assigned 5,000,000 ccounts receivable - factored 068.3 1,500,000 1. What is the total amount of cash received from the financing of accounts receivable during the year? 3,840,000 1,390,000 3,890,000 d. 3,540,000 900 034 2. What total amount of accounts receivable should be reported as current assets on December 31, 2020? a. 6,000,000 b. . 1,000,000 5,000,000 d. 7,500,000 5. Wh sal 3. What is the bad debt expense for the current year! 600,000 fact 500,000 650,000 750,000found Problem 8-19 Multiple choice (IAA) ans of 1. Why would an entity factor accounts receivable? a. To improve the quality of credit granting process counts b. To limit its legal liability d debt c. To accelerate access to amount collected d. To comply with customer agreements nder of 2. Which of the following is a method to generate cash from ate, as accounts receivable? loan. a. Assignment e. None b. Factoring d of the c. Assignment and factoring d. Assignment, factoring and discounting 00,000 eceivable 3. The practice of realizing cash from accounts receivable prior to maturity date is widespread. Which term is not 000,000 associated with this practice? .000,000 a. Hypothecation ,500,000 b. Factoring rom the c. Defalcation r? d. Pledging 4. When the accounts receivable are sold outright, the accounts receivable have been a. Pledged b. Assigned should be c. Factored 20? d. Collateralized 5. Which of the following is used to account for probable sales discounts, sales returns and sales allowances in a factoring arrangement? a. Factor holdback year? b. Recourse liability c. Both factor holdback and recourse liability d. Neither factor holdback nor recourse liability 249Problwm 8-20 Multiple choice (AICPA Adapted) 1. When an entity factored accounts receivable without recourse with a bank, the transaction is best described as a. Bank loan collateralized by the accounts receivable. b. Bank loan to be repaid by the proceeds from the accounts receivable. c. Sale of the accounts receivable to the bank, with risk of uncollectible accounts retained by the entity. CHA d. Sale of the accounts receivable to the bank, with the risk of uncollectible accounts transferred to the bank. 2. Which statement is true when accounts receivable are RECE factored without recourse? a. The transaction may be accounted for either as secured Disco borrowing or sale. b. The accounts receivable are used as collateral. c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the accounts receivable. d. The financing cost should be recognized ratably over TECHNI the collection period. To know 3. All but one of the following are required before a transfer of accounts receivable can be recorded as a sale. To distin a. The transferred accounts receivable are beyond the reach of the transferor and the creditors. recour b. The transferor has not kept effective control through a repurchase agreement. To unde c. The transferor maintains continuing involvement. d. The transferee can pledge the accounts receivable. accou recogn 4. If financial assets are exchanged for cash but the transfer does not meet the criteria for a sale, the transaction should be accounted for as To unde a. Secured borrowing accour b. Pledge of collateral ablod adfont c. Both secured borrowing and pledge of collateral d. Neither secured borrowing nor pledge of collateral 250
