Question

In: Accounting

1. On January 1, Panther Corporation received one-year 12% note receivable with a face value of...

1. On January 1, Panther Corporation received one-year 12% note receivable with a face value of P100,000 from one of its customers. On October 1, Panther Corporation discounted the note to Peaceful Bank to meet some of its maturing obligations. The bank’s rate in discounting the note is 14%. How much is the proceeds from discounting of notes receivable?

2. Wednesday Company received from a customer a one-year, P 500,000 note bearing annual interest of 8%. Five months prior to maturity, Wednesday discounted the note at IABF Bank at 10%. Give the entry for the discounting, assuming the note was discounted with recourse and is accounted as a conditional sale. Round off to the nearest whole number.

Solutions

Expert Solution

Discounting Notes recievable
Part 1
Computation of maturity value
Face value 100000
Interest @ 12% 12000
Maturity value 112000
Computation of Discount
.14 * 112000 * 3/12 = 3920
Computation of proceeds
Maturity value 112000
Discount 3920
Proceeds 108080
Interest Revenue Earned
100000 * .12 * 9/12 9000
Computation of Net Interest Expense
Face Value + Interst earned 109000
Discount proceeds 108080
Interest expense 920
Journal Entry
Cash A/c                              Dr 108080
Interest expense A/c Dr 920
   To Notes Recievable 100000
   To Interest income 9000
Part 2
Computation of maturity value
Face value 500000
Interest @ 8% 40000
Maturity value 540000
Computation of Discount
.10 * 540000 * 5/12     = 22500
Computation of proceeds
Maturity value 540000
Discount 22500
Proceeds 517500
Interest Revenue Earned
500000 * .08 * 7/12 23333
Computation of Net Interest Expense
Face Value + Interst earned 523333
Discount proceeds 517500
Interest expense 5833
Journal Entry
Cash A/c                              Dr 517500
Interest expense A/c     Dr 5833
   To Notes Recievable 500000
   To Interest income 23333
A contingent liability will be shown as follows:
A note is worth P 540000 is discounted with bank with recourse.

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