Loan receivable

1. Transaction costs that are directly attributable to the loan receivable include
direct origination cost.
2. direct origination cost is an origination fee not chargeable against the borrower
3. Loan receivable 5M Cash 331,800 Unearned
100T
Cash 5M Unearned Interest 331,800
Cash 100T
Principal amount 5,000,000
Origination fees received ( 331,800)
Direct origination cost incurred 100,000
4,768,200

*next step is to find the effective interest that would discount the principal amount
and future interest payment to 4,768,200
* the discount on loan receivable is 231,800 to be amortized using effective interest
method

Receivable financing
1. Financial flexibility or capability of an entity to raise money out of its receivables
2. Assignment of accounts receivable is transferring some of the rights in AR to a
lender called the assignee in consideration for a loan. It is formal, evidenced by a
financing agreement and a promissory note both of which the assignor assigns.
3. Pledging is general because all AR serve as collateral for the loan.
4. in Nonnotification basis, customers are not informed that that their accounts have
been assigned. As a result, they continue to make payments to the assignor, who in
turn remits collection to the assignee. In notification basis, customers are notified to
make their payments directly to the assignee.
5. Assignee lends only a certain percentage of the face value of the accounts
assigned because the assigned accounts may not be fully realized by reason of such
factors as sales discount, sales return, and allowances and uncollectible accounts.]
6. Notification:
Note payable 588,000 NP 800,000
Sales discount 12,000 Cash received
(588,000)
 Accounts receivable assigned 600,000 Balance
212,000

Interest expense 8,000

Cash 8,000 AR-assigned
1,000,000
Collection (900,000)
Remittance from the bank: Balance 100,000

Cash 85,880
Interest expense(1%x212T) 2,120
NP 212,000
AR-assigned 300,000
AR 100,000
AR-assigned 100,000

7. entity shall disclose its equity in the assigned accounts

AR-assigned 1,000,000
Less: NP 800,000
Equity 200,000

8. factoring is a sale of AR on a without recourse, notification basis. Factor assumes

responsibility for uncollectible factored accounts. In assignment, assignor retains
ownership of the accounts assigned.
9. Casual factoring- normal sale of accounts receivable, without other deductions
10. Cash 365,000
Sales disc 10,000
Commission 25,000
Receivable from factor 100,000
Accounts receivable 500,000
*Customer is subsequently allowed a credit of 50,000 for damaged merchandise:
Sales returns and allowance 50,000
Sales discount(2%x50T) 1,000
Receivable from factor 49,000
*final settlement:
Cash 51,000
Receivable from factor 51,000

11. if customer buys goods and uses a credit card, the credit card receipt must be
forwarded by the retailer to the card issuer who will then pay the retailer the
appropriate amount minus credit service charge

Accounts receivable- Diners club 200T

Sales 200T
Cash 194,000
Credit card service charge 6,000
AR-diners club 200,000
12. Notes received from officers, employees, shareholders and affiliates shall be
designated separately
13. Dishonored notes shall be removed from the notes receivable account and
transferred to accounts receivable at an amount to include, if any, interest and other
charges.
Accounts receivable
Notes receivable
Interest Income
14. When a note is negotiable, the payee may obtain cash before maturity date by
discounting the note at a bank or other financing company. Payee then becomes an
endorser and the bank becomes the endorsee
15. Endorsement may be with recourse which means that the endorser shall pay the
endorsee if the maker dishonors the note. This is the contingent or secondary
liability of the endorser; or it could be without recourse which means that the
endorser avoids future liability even if the maker refuses to pay the endorsee on the
date of maturity. In the absence to the contrary, endorsement is assumed to be with
recourse.
16. Principal 1,000,000
 Interest(1Mx12%x180/360) 60,000
MV(full term of the note) 1,060,000

Term of the note 180

Less: Days expired from july 1 to aug.30 60
Discount period 120days

Discount: (1,060,000 x 15% x 120/360) 53,000

Net proceeds: 1,060,000-53,000= 1,007,000

Principal 1,000,000
Accrued interest(1Mx12%x60/360) 20,000
CV 1,020,000

Cash 1,007,000
Loss on NR discounting 13,000
Notes receivable 1,000,000
Interest Income 20,000

1. If the discounting is with recourse, the transaction is accounted for as either

conditional sale of note receivable recognizing contingent liability and secured
borrowing

a. conditional sale:
Cash 1,007,000
Loss on NR discounting 13,000
Note receivable discounted 1,000,000
Interest Income 20,000
 *the note receivable discounted account is deducted from the
total note receivable when preparing the balance sheet with
disclosure of contingent liability

*the note is paid by the maker to the first bank

NR discounted 1,000,000
Note receivable 1,000,000

*if the note is dishonored by the maker and the entity pays the first bank the
maturity value, plus protest fee and other bank charges of 40,000
Accounts receivable 1,100,000 NR discounted 1M
Cash 1,100,000 Note receivable 1M

2. if the discounting is treated as secured borrowing, NR is not derecognized but

instead an accounting liability is recorded at an amount equal to the face amount
of the NR discounted
Cash 1,007,000
Interest expense 13,000
Liability for NR discounted 1,000,000
Interest income 20,000
 no gain or loss because the discounting is borrowing

3. If the note discounted is made by the party discounting, a primary liability

exists, not a contingent liability since in this case, the maker is the one originally
liable to the bamk for the loan obtained
Cash 440,000
Discount on NP(500Tx12%) 60,000
Note payable-bank 500,000
4. Interest-bearing note- interest being included in the face value
5. Interest-bearing note, interest is compounded annually:
Note receivable 1M
Land 800T
Gain on sale of land 200T
Accrued Interest receivable 120T
Interest income(12%x1M) 120T

2nd year:
Accrued IR 134,400
Interest income 134,400

Face value 1,000,000

Interest accrued for 1st year 120,000
Total 1,120,000

Interest: 1,120,000x12% 134,400

3rd year
Cash 1,404,928
NR 1,000,00
Accrued IR 254,400
Interest income 150,528

Face value 1,000,000

Interest accrued 254,400
Total 1,254,400

Interest: 1,254,400x12% 150,528

Noninterest bearing note:

Note receivable 400,000
 Sales 350,000
Unearned interest income 50,000

Gross income: 350,000 cash price-280,000= 70,000

Cash 100,000
NR 100,000

Unearned interest income 20T *bond outstanding method is

used.
Interest income 20T

Note receivable-current portion 100,000

Less: Unearned interest income 15,000
85,000

Note receivable-noncurrent portion 200,000

Less: Unearned interest income 15,000
CV 185,000

Noninterest-bearing note with down payment and ordinary annuity. Cash

price is not given

Cash 100,000
NR 300,000
Equipment 250,000
Gain on sale of equipment 98,690
Unearned 51,310

Unearned interest income 24,869

Interest income 24,869
*effective interest is used using the prevailing market interest.