Answered: A Company accepted from a customer in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A Company accepted from a customer in settlement of an account a P5,000,000, 90-days 12% noted dated September 30, 2019. On October 31, 2019, an entity discounted the note at 15% with recourse at the bank. The note was paid in full by the maker on maturity. The discounting with recourse is accounted for as a conditional sale with recognition of a contingent liability.

What amount was received from the note receivable discounting?

A. P5,000,000

B. P5,021,250

C. P5,150,000

D. P5,100,000

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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