RECEIVABLE

FINANCING
(SUMMARY QUIZ)
WA L T E R S . D E L I G , C P A
GUIDELINES
1. All the topics shall be in relation to Receivable Financing alone.
2. There will be 3 rounds in the competition – EASY, AVERAGE, and DIFFICULT.
Each round will be allocated 10 seconds, 30 seconds, and 60 seconds for the time
limit, with 2, 3 and 5 points to be awarded for each, respectively.
3. Questions will be read twice. Furthermore, for EASY round, all contestants shall
raise their two hands while the questions are being read. Should there be any
computation for easy round, you are only allowed to manipulate your calculators
once the quizmaster says “GO”. Provided further, that you are not allowed to solve
on any paper. All solving shall be done via calculator.
4. At the discretion of the quizmaster, some questions will be asked individually and
contestants shall be picked randomly per team.
5. In case of a tie, there will be a clincher round and whoever gives the correct
answer first shall be declared the winner.
EASY ROUND
2 POINTS
10 SECONDS
EASY ROUND

1. It is a predetermined amount as a
protection against customer returns
and allowances and other special
adjustments.

Answer: Factor’s Holdback

EASY ROUND
2. This is the financing method wherein an entity
is forced to factor some or all of its accounts
receivable at a substantial discount to a bank or a
finance entity to obtain the much needed cash

Answer: Casual Factoring

EASY ROUND
3. The practice of realizing cash from trade receivables prior to
maturity date is widespread. Which term is not associated with
this practice?
A. Hypothecation
B. Factoring
C. Defalcation
D. Pledging

Answer: C. Defalcation
EASY ROUND
4. The note receivable discounted account is reported as

A. Contra asset account for the proceeds from the

discounting transaction
B. Contra asset account for the face amount of the note
C. Liability account for the proceeds from the discounting
D. Liability account for the face amount of the note

Answer: B.
EASY ROUND

5. TRUE or FALSE:
A disclosure would be sufficient
with respect to assignment and
pledging of accounts.
Answer: False
EASY ROUND

6. TRUE or FALSE:
A disclosure is not necessary for
equity in assigned accounts

Answer: False
EASY ROUND
7. The amount of receivables that are pledged against borrowings
should be

a. Included in total receivables with disclosure

b. Included in total receivable without disclosure
c. Excluded from total receivables with disclosure
d. Excluded from total receivables without disclosure

Answer: A.
EASY ROUND
8. The assignor’s equity in assigned accounts that is required to
be disclosed in the notes to the FS is equal to the

a. Bank loan balance

b. Assigned accounts receivable
c. Bank loan balance minus the assigned accounts receivable
d. Assigned accounts receivable minus the bank loan balance

Answer: D.
EASY ROUND
9. X, Co. assigned 2,000,000 of accounts receivable as
collateral for 750,000 4% loan with a bank. The entity
also paid a finance fee of 5% on the transaction
upfront. What would be recorded as a loss on the
transfer of accounts receivable?

Answer: 37,500
EASY ROUND
10. Which of the following is a method to generate cash from accounts
receivable?
I. Assignment
II. Discounting
III. Factoring

A. I and II only C. I and III only

B. I, II, and III D. II and III only

Answer: C.
AVERAGE ROUND
3 POINTS
30 SECONDS
AVERAGE ROUND

1. Why would an entity sell accounts receivable to another

entity?

A. To improve the quality of its credit granting process.

B. To limit its legal liability.
C. To accelerate access to amount collected.
D. To comply with customer agreements.

Answer: C.
AVERAGE ROUND

2. On June 30, 2020, Ray Co discounted at

the bank a customer’s 60,000 6-month 10%
note receivable dated April 30, 2020. The
bank discounted the note at 12%. Ray’s
proceeds from this discounted note
amounted to

Answer: 60,480
AVERAGE ROUND

3. Apex Co. accepted from a customer 1,000,000

face amount 6-month 8% note dated April 15,
2013. After 2 months, Apex discounted the note
with recourse at the bank at 12% discount rate.
The discounting is accounted for as a secured
borrowing. What is the amount of discount to be
considered on this transaction?
Answer: 41,600
AVERAGE ROUND

4. Under the discounting method, specifically,

secured borrowing, the difference between the
principal plus the interest earned for the period
covered from the N/R issuance until the date of
the discounting, and the net amount received for
the said transaction is referred to as
___________.
Answer: Interest Expense
AVERAGE ROUND

5. Star Co. factored 5,000,000 of its accounts

receivable. The factor retained 8% for sales
adjustments and charged 300,000 as a financing
fee. For simplicity, the estimated and actual
amounts are 250,000 for sales adjustments and
100,000 for uncollectible accounts. What is the
gain to be recognized on the transfer?
Answer: Zero / Nil / Nada / -0-
AVERAGE ROUND

6. Char Co. accepted from a customer 4,000,000

face amount 6-month 8% note dated April 15,
2013. After 2 months, Apex discounted the note
with recourse at the bank at 12% discount rate.
The discounting is accounted for as a secured
borrowing. What is the amount of Notes
Receivable discounted on this transaction?
Answer: Zero / Nil / Nada / -0-
AVERAGE ROUND

7. If a note receivable is discounted with recourse,

a. A contingent liability does not exist.

b. Note receivable must be credited.
c. Note receivable discounted should be credited.
d. Liability for note receivable discounted should be
credited.
Answer: C. If silent – use Cond. Sales
AVERAGE ROUND

8. Factoring of receivables is usually done on a

A. With recourse, notification basis

B. Without recourse, notification basis
C. With recourse, non-notification basis
D. Without recourse, non-notification basis

Answer: B. Without recourse, NB

AVERAGE ROUND

9. On November 1, 2020 Duress Co. discounted with

recourse at 10% a one-year noninterest bearing 2,000,000
note receivable maturing January 31, 2021. The discounting
of the note receivable is accounted for as a conditional sale.
What amount of contingent liability should be disclosed in
the financial statements for the year 2020?
A. 2,050,000 C. 2,0333,333
B. 2,000,000 D. 0

Answer: A. 2,050,000
AVERAGE ROUND

10. Which of the following statements is correct? PAS 39, par 17, provides that an
entity shall derecognize a financial asset when either one of the following criteria
is met:
Statement I – The contractual rights to the cash flows of the financial asset have
not yet expired.
Statement II – The financial asset has been transferred and the transfer qualifies
for derecognition based on the extent of transfer of risks and rewards of
ownership.

A. Only Statement 1 is correct. C. Both statements are correct.

B. Only Statement II is correct. D. Neither 1 nor II is correct,

Answer: B. Only Statement II is correct.

DIFFICULT ROUND
5 POINTS
60 SECONDS
DIFFICULT ROUND

1.On June 30, 2003, Ray Co. discounted at

the bank a customer’s 60,000, 6-month 10%
note receivable dated April 30, 2003. The
bank discounted the note at 12%.
Compute for the interest income.

Answer: 1,000
DIFFICULT ROUND

2. On August 1, 2019, Obstacle Company’s 1,000,000 one-

year noninterest bearing note due July 31, 2020 was
discounted at the bank at 10.8% . The entity used the straight
line method of amortizing discount. What is the carrying
amount of the note payable on December 31, 2019?

A. 1,000,000 C. 937,000
B. 995,000 D. 892,000

Answer: C. 937,000
DIFFICULT ROUND

3. Meowks Co. accepted from a customer 1,000,000

face amount 6-month 8% note dated April 15, 2013.
On the same date, Meowks discounted the note with
recourse at the bank at 12% discount rate. The
discounting is accounted for as a secured borrowing.
What is the amount of interest expense, and interest
income to be recognized on this transaction?

Answer:22,400 and 0
DIFFICULT ROUND

4. Undaunted Co. discounted its own 5,000,000 one-year note

at a bank, at a discount rate of 12% when the prime rate was
10%. In reporting the note in the statement of financial
position prior to maturity, what rate should be used in
recording interest expense?
(Rate = discount / Net proceeds).

A. 10.0% B. 10.7% C. 12.0% D. 13.6%

Answer: D. 13.6%
DIFFICULT ROUND

5. X Corporation factored 6,000,000 of accounts receivable to A

Corporation on October 1, 2019. Control was surrendered by X
Corporation. A Corporation accepted the receivables subject to
recourse for nonpayment. A Corporation assessed a fee of 3% and
retains a holdback equal to 5% of the accounts receivable. In addition,
A Corporation charged 15% interest computed on a weighted-average
time to maturity of the receivables of 54 days. The fair value of the
recourse obligation is 90,000. What is the amount of cash that X
Corporation will receive and record as a result of this transaction?

Answer: 5,386,850