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Pledging of Receivables

The document contains three examples of transactions involving the assignment of accounts receivable as collateral for bank loans. The first example involves Pittance Company pledging accounts receivable to secure a bank loan. The second example involves Savior Company assigning accounts receivable to a bank in exchange for a cash advance, with the bank making future collections on the assigned accounts. The third example similarly involves Docile Company assigning accounts receivable to a bank in exchange for a cash advance, with the bank collecting on the assigned accounts and settling the loan over time.

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Prince Alexis Garcia
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350 views2 pages

Pledging of Receivables

The document contains three examples of transactions involving the assignment of accounts receivable as collateral for bank loans. The first example involves Pittance Company pledging accounts receivable to secure a bank loan. The second example involves Savior Company assigning accounts receivable to a bank in exchange for a cash advance, with the bank making future collections on the assigned accounts. The third example similarly involves Docile Company assigning accounts receivable to a bank in exchange for a cash advance, with the bank collecting on the assigned accounts and settling the loan over time.

Uploaded by

Prince Alexis Garcia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Pledging of receivables

Pittance Company provided the following information in connection with a bank loan.

March 1 Pittance Company borrowed P2,000,000 from bank on a six-month not carrying an
interest of 12% per annum. Accounts of P3,000,000 are pledged to secure the loan.

April 1 Pledged accounts of P1,000,000 are collected minus 2% discount.

June 1 The remaining pledged accounts are collected.

Sept 1 The bank loan is repaid plus interest.

Required:
Prepare journal entries to record the transactions.

Assignment of receivables

Savior Company provided the following transactions:

May 1 Elegant Company assigned P800,000 of accounts receivable to a bank in


consideration for a loan.

A cash advance of 80% less service charge of P20,000 was made by the latter.

It was agreed that interest of P2% per month is to be made and that the assignor
continues to make the collections. The entity signed a promissory note for the loan.

5 The entity issued a credit memo to a customer for returned merchandise, P30,000.
The account is one of the assigned accounts.

10 Collections of P500,000 of the assigned accounts were made, less 2% discount.

June 1 Remitted the collections to the bank plus 2% interest for one month.

7 Assigned accounts of P10,000 proved to be worthless.

20 Collections of P200,000 for the accounts assigned were made.

July 1 Final settlement was made with the bank. Elegant Company accordingly remitted the
total amount due the bank to pay off the loan plus interest charge.

Required:
Prepare journal entries to record the transactions.

Assignment of receivables

Docile Company assigned certain accounts receivable to a bank for a loan on the following
basis: 75% cash advance, 4% service charge on gross accounts assigned, 2% interest per
month is to be charged, and the bank makes the collections. The entity signed a promissory
note for the loan.

July 1 Received remittance upon the specific assignment of P1,500,000 in accounts to the
bank
Aug. 1 Received notice from bank that P800,000 of the assigned accounts were collected. A
check was sent to the bank for one month interest charge.

Sept. 1Received notice from bank that that assigned accounts of P500,000 were collected in
full and the remaining accounts of P200,000 were being returned. Accordingly, a check was
received from the bank in settlement of the of the assignment contract. In making the
settlement, the bank deducted the interest charge for the corresponding period.

Required:
Prepare journal entries on the books of the assignor.

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