University of the Philippines - Junior Philippine Institute of Accountants

Education and Research Committee 63.1

BA 114.1 Sample Quiz 2 (A/R and Revenue Recognition)
Academic Year 2021-2022

Part I. Multiple Choice (10 items)

For numbers 1 to 10, choose the letter that best corresponds to the correct answer.

1. The definition of a financial asset according to IFRS 9 includes all of the following
except:
a. Cash
b. Contractual right to receive cash from another entity
c. Contractual right to receive financial asset/s from another entity
d. Contractual right to exchange financial assets or liabilities under conditions that
are potentially favorable to the counterpart entity

2. Which of the following statements is true?

a. Foreign currency is the currency of the primary economic environment in which
the entity operates.
b. Exchange difference is the difference resulting from translating a given number
of units of one currency into another currency at difference exchange rates
c. Spot exchange rate is a fixed exchange rate determined at the end of the
reporting period.
d. A foreign currency transaction can only involve current assets and liabilities, as
stipulated by relevant IFRSs.

3. An entity transfers a financial asset, if and only if, it:

I. Transfers the contractual right to receive the cash flows
II. Retains the contractual right to receive the cash flows but assumes contractual
obligation to pay the cash flows to one or more recipients

a. I only
b. II only
c. Either I or II
d. Both I and II

4. Which of the following is true when accounts receivables are factored without recourse?
a. The receivables are used as a collateral for a note issued to the factor by the
owner of the receivables
b. The factor, usually a financing institution, assumes the risk of uncollectibility and
potential impairment losses for the receivables
 c. Any financing costs arising from the loan backed up by the accounts receivable
should be recognized pro rata by the entity
d. The firm where the receivables originated from is mandated to create a
subsidiary ledger account for the receivables that were particularly factored

5. Under the allowance method of recording bad debts expense for a particular period, the
collection of a previously written off account would effectively
a. Decrease the total assets of the entity
b. Increase net income for the fiscal period
c. Increase the current assets of the firm
d. Decrease the receivables’ carrying amount

6. Which of the following items would increase the accounts receivable ledger balance?
a. Notes received in settlement of existing customer accounts
b. Collection from credit customers beyond the offered discount period
c. Dishonored notes together with the corresponding accrued interest
d. Assignment of accounts receivable made on a non-notification basis

7. Which of the following statements is false?

a. Under the percentage of outstanding AR method, the bad debts expense to be
recognized is made without consideration to any beginning balance of Allowance
for Doubtful Accounts (ADA) and any adjustments made during the period.
b. Under the aging of receivables method, bad debts expense is derived by
considering the collectibility rate of accounts receivable groups after adjusting
for any outstanding ADA balance.
c. The ending balance of ADA is P27,000. Assuming that no accounts receivable
were written-off, no accounts recovered, and bad debts expense for the year
totaled P18,000, ADA had a beginning credit balance of P9,000.
d. Recovery of accounts previously written-off would decrease the net realizable
value of accounts receivable.

8. If a company employs the net method of recording accounts receivable from customers,
then sales discounts not taken should be reported as
a. A deduction from sales in the statement of comprehensive income
b. An item of other expense in the statement of comprehensive income
c. An item of other income in the statement of comprehensive income
d. A deduction from the gross accounts receivable to arrive at amortized cost

9. Which of the following is not a valid basis for using trade discounts as adjustment to list
price?
a. To avoid frequent changes in price catalogs
b. To encourage collection of account within a specified period
c. To make price differentials among different classes of customers
 d. To encourage customers to buy in big quantities

10. Chidi Anagonye Company prepares an accounts receivable aging schedule with a series
of computations as follows: 2% of the total peso balance of accounts from 1-60 days
past due, plus 5% of the total peso balance of accounts from 61-120 days past due and
so on. How would you describe the total of the amounts determined in this series of
computations?
a. It is the amount of the desired credit balance of the allowance for uncollectible
accounts to be reported in the year-end financial statements.
b. It is the amount that should be added to the allowance for uncollectible accounts
at year-end.
c. It is the amount of uncollectible accounts expense for the year.
d. When added to the total of accounts written off during the year, this new sum is
the desired credit balance of the allowance account.

Part II. Morse Type (5 items)

For numbers 11 to 15, choose among the following choices:
A - If only statement 1 is true
B - If only statement 2 is true
C - If both statements are true
D - If both statements are false

11. Statement 1: At initial recognition, an entity shall measure trade receivables at

transaction price, especially if they do not contain a significant financing component.

Statement 2: Trade receivables include notes receivable if they arise from an entity’s
ordinary course of business and if the terms of the note receivable fits the normal
operating cycle of the entity.

12. Statement 1: If a firm uses the gross price method for initially recognizing trade
receivables, any sales discount taken by customers are treated as miscellaneous
expenses in the firm’s statement of comprehensive income.

Statement 2: If a borrowing arrangement results in the hypothecation of accounts

receivables, the owner of the said assets must set up a separate subsidiary ledger
account to set aside these receivables in the statement of financial position.

13. Statement 1: An account receivable from a sale of a luxurious boat made by a boat
retailing company on December 27, 2021 and expected to be realized on March 26, 2022
should be presented as a current asset in the 2021 statement of financial position.
 Statement 2: A factor’s holdback is generally recognized to account for potential sales
returns, sales discounts, sales allowances, and other probable adjustments considered
in collecting the receivables involved in the factoring arrangement.

14. Statement 1: Under the allowance method, sales revenue is never increased by a
recovery of an account previously written off.

Statement 2: When individual customers’ accounts have credit balances of material

accounts, these amounts must be deducted from the debit balance in other customers’
accounts in the statement of financial position.

15. Statement 1: Factoring without recourse is equivalent to an absolute sale of accounts

receivable.

Statement 2: According to IAS 21, exchange differences arising on the settlement of

monetary items or on translating monetary items at rates different from those at which
they were translated on initial recognition during the period or in previous financial
statements shall be recognized as an adjustment to retained earnings in the period in
which these differences arise.

Part III. Problems (6 items)

1. On December 31, 2021, Michael Co.’s (a merchandising company) “Accounts Receivable”

included the following: (Assume all items in the table are independent of each other, unless
otherwise stated)

Accounts Receivable, net of P73,000 credit P 365,000

balance in customers’ accounts, including as
well P8,000 accounts receivable to a
customer which is definitely uncollectible

MasterCard or VISA credit card sale of 142,000

merchandise to customers

Overpayment to supplier A for inventory 12,000

purchased on account

Accounts Payable, net of P27,000 debit 193,000

balance in supplier B’s account

Dividend Receivables 25,000

Other trade accounts receivable - unassigned 95,000

Advances to or receivables from 282,000

 stockholders, (P102,000 is collectible
currently)

Trade accounts receivable - assigned 174,000

Other trade installment receivable (see notes 300,000

1 and 2)

Claims from employees, net (see note 3) 225,000

Additional Notes:
1. On June 30, 2021, Michael Co. sold its merchandise to a particular customer, receiving a
7%, 3-year note, having a face value of P300,000. The principal and interest are due
semi-annually (i.e. every June 30 and December 31). The customer paid the necessary
principal and interest due at the end of 2021.
2. The company has clearly defined its normal operating cycle to be 1 year.
3. The expected amount from employees was from a sale agreement made at the end of
2021 between the entity and its workers, with credit terms 10/120, n/365. According to
company policy, this asset was specifically designated to be recorded using the gross
method.

REQUIREMENTS:
a. How much is the “Trade Receivables” classified under the current assets of the entity on
December 31, 2021?
b. How much is the “Trade and Other Receivables” line item to be presented on the current
assets section of the entity’s statement of financial position on December 31, 2021?

2. The following details were made available about Shawn Company’s receivables on December
31, 2021:
Accounts Receivable, beginning P200,000
Allowance for Doubtful Accounts, beginning (credit balance) 15,000
Credit Sales 2,500,000
Sales Returns and Allowances 20,000
Cash collected from customers’ current accounts
net of 12% sales discount 1,663,200
Accounts receivable written-off during the year 35,000
Recoveries of accounts written-off in previous years 12,000

Actual credit sales and uncollectible accounts during the previous years were as
follows:

Year Credit Sales Bad Debts Expense

2018 P1,100,000 P33,000
 2019 1,200,000 48,000
2020 1,350,000 67,500

An aging of accounts receivable at year-end indicated the following:

Age % of Total Accounts Receivable Probability of Collection
Current 75% 90%
31-60 days 15% 85%
61-90 days 8% 60%
Over 90 days 2% 5%

REQUIREMENTS: What is the net realizable value of Accounts Receivable as of year-end

under:
a. percentage of net credit sales method (i.e. credit sales net of returns, allowances, and
discounts)?
b. aging of receivables method?

3. The following items were deemed relevant in your independent assessment of Janet
Company’s accounts receivables for the year ended December 31, 2021:

AR, beginning 100,000

ADA, beginning 14,000 (credit)
Credit Sales (for the year) 252,000
Cash Collections 130,000
Sales Allowances 5,700
Sales Discounts 8,900
Sales Returns 9,800
Write-offs 15,000

2021 1Q gross credit sales 105,000

2021 2Q gross credit sales 48,000
2021 3Q gross credit sales 30,000
2021 4Q gross credit sales 69,000

Additional Information:
● The entity has a comprehensive accounting policy for its recognition of bad debts
expense per year. Bad debts expense is recognized every quarter-end at an amount
equal to 3% of the gross sales of the quarter that just ended. Meanwhile, the required
balance of its Allowance for Doubtful Accounts at year-end should be equal to 10% of
the ending Accounts Receivable ledger balance.
● A separate sales invoice was not taken into account in the company’s existing records at
year-end. The sales price of the transaction cannot be read from the document, but the
attached inventory-related paper indicates that the sold inventory for this specific
 transaction had a cost of 40,000. You have also determined that the gross profit of the
entity is 60% based on gross sales. No collections have been recorded for this item.
● The cash collections for the year relating to the firm’s A/R exclude P23,000 from
recovered accounts that were previously written off.

REQUIREMENTS:
a. How much is the ending Accounts Receivable ledger balance on December 31, 2021?
b. How much is the net Bad Debts Expense for the year-ended December 31, 2021?
c. How much is the carrying amount/net realizable value of Accounts Receivable at
year-end?

4. Tahani & Co. is a Philippine-based merchandising company that operates on a fiscal year
basis. Its statements of financial position for the past years are always labeled with “As of
January 31, 20XX”.

The entity sold goods worth 5,820,000 JPY (credit terms 3/60, n/120) to a local buyer on
December 31, 20X1. On January 31, 20X2, the local buyer promised to settle the accounts on
February 28, 20X2. On that said date, the buyer successfully settled the accounts. The firm has a
policy of honoring its credit terms to its customers after accounting for the effects of foreign
exchange differences and before closing the customers’ accounts.

The accountant of Tahani & Co. determined the following exchange rates to be relevant in
determining the correct Accounts Receivable amount to be carried in the entity’s books:

Date 1 JPY to USD 1 PHP to USD

December 31, 20X1 $ 0.0077 $ 0.0163

January 31, 20X2 $ 0.0088 $ 0.0204

February 28, 20X2 $ 0.0091 $ 0.0271

REQUIREMENTS:
a. How much is the cash collected on February 28, 20X2, denominated in functional
currency?
b. How much is the unrealized foreign exchange gain or loss on January 31, 20X2?
c. How much is the realized foreign exchange gain or loss on February 28, 20X2?

5. Eleanor Inc. is a manufacturer of various research-related materials. It factored its receivables

amounting to P2,750,000 (credit terms 4/20 and n/60) with Shellstrop Bank. Eleanor Inc. has a
policy of adhering to its offered credit terms regardless of how its receivables are realized,
whether collected from customers or sold to a factoring institution. Further, on the books of
Eleanor Inc., these receivables have a carrying amount of P2,700,000. The receivables were
sold shortly after shipment of orders to customers. The bank charged a 7% commission based
on the gross amount of the factored receivables. As per company policy, Shellstrop Bank
withheld an amount equivalent to 11% of the gross receivables factored. Also, to further induce
the sale, Eleanor Inc. guaranteed 2% of the net amount of receivables factored, which is
considered insignificant relative to the size of the transaction.

REQUIREMENTS:
a. How much cash will be received by Eleanor Inc.?
b. How much is the recourse obligation/liability assumed by Eleanor Inc. in its sale of
receivables?
c. Assume that 15 days after the sale, a customer is allowed a credit of P40,000 for
damaged merchandise. Determine the amount debited/credited to Factor’s Holdback for
this transaction.

6. Jason Mendoza Corp. (JMC) had a Jan. 1, 20X1 A/R ledger balance of P6,500,000. During the
year, the following transactions happened:
● On September 19, 20X1, JMC borrowed P520,000 from BDO and pledged some of its
receivables as collateral security. For the month of October, P205,000 was collected
from the pledged receivables. Sales allowances and discounts for the pledged
receivables reached a total of P17,000.
● On December 7, 20X1, JMC assigned (on a non-notification basis) P4,500,000 accounts
receivable to BPI in exchange for a 120-day, 13%, note equal to 85% of the assigned
receivables. For the month of December, P2,300,000 was collected from the assigned
receivables. Sales returns and discounts for the assigned receivables amounted to
P30,000. Part of the assignment transaction requires JMC to forward all the cash
proceeds from the assigned receivables every month-end.

REQUIREMENTS:
a. How much is the Interest Expense recognized for 20X1?
b. How much is the ending Accounts Receivable ledger balance on December 31, 20X1?
c. What is the amount of equity on assigned accounts to be presented on JMC’s statement
of financial position as of December 31, 20X1?

Best of luck on your 2nd BA 114.1 Quiz! #LaBAAn!