Aunt May, Inc. had the following receivable financing transactions for the fiscal year ended August 31, 2021: a) On June 30, 2021, Aunt May, Inc. had an outstanding accounts receivable balance amounting to P4,000,000. The receivables were pledged to Philippine Savings Bank (PS Bank) in consideration of a 12% loan. The loan amount is 80% of the outstanding receivables. PS Bank charged the company 5% on the outstanding accounts receivable as service charge. By the end of July, Aunt May collected P1,200,000 cash from the accounts receivable net of a P120,000 sales discount. Also, by the end of July, Aunt May accepted from customers merchandise originally invoiced at P80,000 as returns. By the end of August, Aunt May collected another P900,000 after a P50,000 sales discount. The company wrote-off P200,000 of the accounts receivable as worthless. It was agreed-upon with PS Bank that remittances from collections will be made to the bank on a monthly basis and that the collections from customer will cover both interest and loan principal. b) On May 1, 2021, Aunt May, Inc. discounted to PS Bank a 12-month, 10% note receivable dated January 1, 2021 and with a face value of P2,000,000. PS Bank’s discount rate was at 8%. The discounting was done on a without-recourse basis, thus transferring all significant risk and rewards associated to the notes receivable to PS Bank. Required: 1) Journal entries to reflect the transactions. 2) Determine the balances of the following accounts as at August 31, 2021: a. Accounts receivable b. Loans payable c. Notes receivable 3) How much is the gain or loss to be reported in the 2021 profit or loss from derecognition of any receivables?
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Aunt May, Inc. had the following receivable financing transactions for the fiscal year ended August 31, 2021:
a) On June 30, 2021, Aunt May, Inc. had an outstanding
By the end of July, Aunt May collected P1,200,000 cash from the accounts receivable net of a P120,000 sales discount. Also, by the end of July, Aunt May accepted from customers merchandise originally invoiced at P80,000 as returns.
By the end of August, Aunt May collected another P900,000 after a P50,000 sales discount. The company wrote-off P200,000 of the accounts receivable as worthless.
It was agreed-upon with PS Bank that remittances from collections will be made to the bank on a monthly basis and that the collections from customer will cover both interest and loan principal.
b) On May 1, 2021, Aunt May, Inc. discounted to PS Bank a 12-month, 10% note receivable dated January 1, 2021 and with a face value of P2,000,000. PS Bank’s discount rate was at 8%. The discounting was done on a without-recourse basis, thus transferring all significant risk and rewards associated to the notes receivable to PS Bank.
Required:
1)
2) Determine the balances of the following accounts as at August 31, 2021:
a. Accounts receivable
b. Loans payable
c. Notes receivable
3) How much is the gain or loss to be reported in the 2021 profit or loss from derecognition of any receivables?
Trending now
This is a popular solution!
Step by step
Solved in 6 steps
