Answered: Tan Company accepted from a customer a…

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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Tan Company accepted from a customer a 4,000,000, 90- day, 12% interest bearing noted dated August 31, 2020. On September 30, 2020, Tan discounted the note with recourse at the Apex State bank at 15%. However, the proceeds were not received until October 1, 2020.

The discounting with recourse is accounted for as a conditional sale with recognition of a contingent liability.

What is the amount received from the discounting of note receivable?

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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