Part I. Multiple Choice Theories.

Choose the letter of the correct answer.

1. Accounts receivable is initially recognized at and subsequently to initial recognition are measured at

a. Present Value, Cost

b. Fair Value, Amortized cost using effective interest method
c. Net Realizable value, Amortized cost using straight line method
d. Maturity Value, Fair Value
2. If the note receivable is exchange for property and no interest rate is stated, the note to be recorded at the
a. Fair market value of property or note c. Face value of the note
b. Maturity value of the note d. Carrying (book) value of the property
3. Trade receivables are classified as current assets when they are reasonable expected to be collected
a. Within one year
b. Within normal operating cycle
c. Within one year or within normal operating cycle, whichever is shorter
d. Within one year or within normal operating cycle, whichever is longer
4. Which nontrade receivables are usually shown as non-current asset?
a. Advances to subsidiary c. Advances to suppliers
b. Advances to employees d. Creditor’s account with credit balances
5. Which of the following is NOT true?
a. Notes Receivable are generally reported as current assets
b. In the gross method, sales discount is reported as deduction from sale
c. Sales Discount Forfeited account is reported as other operating income in profit or loss ratio on the statement of
comprehensive income.
d. The recovery of accounts previously written off would increase the amount of accounts receivable.
6. ABC cycle shop sells a bicycle to BSA, a customer who uses Express Card (a national credit card but not
issued by a bank). In recording this sale, ABC cycle shop should record
a. A cash receipt (cash sales)
b. An account receivable from BSA
c. An account receivable from Express Card
d. A small increase in allowance for doubtful accounts
7. If accounts receivable are pledge against borrowings, the amount of accounts receivable pledge should be
a. Excluded from total receivables with disclosures
b. Excluded from total receivables without disclosures
c. Included from total receivables with disclosures
d. Included from total receivables without disclosures
8. A loss on sales of receivable is recorded when the sale is
a. With recourse c. Pledging
b. Without recourse d. With or without recourse
9. A method of estimating doubtful accounts that emphasize asset valuation rather than income measurement is
the allowance method based on
a. Aging the accounts receivable c. Gross sales
b. Direct write-off d. Credit sales less return and allowances
10. When the accounts receivable of a company are sold outright to a company that normally buys accounts
receivable of other companies without recourse , the accounts receivable have been
a. Transferred with recourse c. Assigned
b. Factored d. Pledged

Part II. Multiple Choice Problem

Choose the letter of the correct answer.
11. On June 1, 2018, FINEST Corp. sold a merchandise with a list price of P300,000 to JPIA Co. on account. Peter was
given the following trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made F.O.B. point of
destination. On June 10, 2018, the merchandise were delivered to JPIA Co. Under allowance method how much of account
receivable recognized by FINEST Corp. upon sale?
a. P168,000b. P164,640 c. P300,000 d. P146,460

12. Montefalco Company provided some information on their financial records on December 31, 2019.
Accounts Receivable, January 1 P1, 920,000
Collections of account receivable 6,240,000
Bad debts 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts Payable, January 1 1,000,000
Accounts Payable, December 31 1,500,000
Cash Sales 1,200,000
Purchases 4,800,000
Gross Profit on Sales 2,160,000

What is the ending balance of Accounts Receivable on December 31,2019?

a. 1,680,000 c. 3,120,000
b. 2,880,000 d. 4,080,000

13. The following data relate to accounts receivable of Arryn Company for 2019:

Accounts Receivable, January 1 P 650,000

Credit Sales 2,700,000
Sales return 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at December 31 per aging 110,000

What amount should Arryn report as net realizable value of accounts receivable on December 31, 2019?
a. 1,200,000 b. 1,125,000 c. 1,085,000 d. 925,000

14. JPIA Company uses the allowance method of accounting for bad debts. The following summary schedule was prepared from
an aging of accounts receivable outstanding on December 31 of the current year:

Number of days outstanding Amount Probability of Collection

0-30 days P5,000 000 .98
31-60 days 2,000,000 .90
Over 60 days 1,000,000 .80

The following additional information is available for the current year:

Net credit sales for the year P40,000 000
Allowance for doubtful accounts Jan. 1, 450,000(Cr.)
December 31, before adjustments 20,000 (Dr.)

If Marian Company bases its estimate on the aging of accounts receivable, what amount should be recognized as doubtful
accounts expense for the current year?
a. 470,000 b. 480,000 c. 500,000 d. 520,000

15. On December 31, 2019, general ledger of Jonaxx Company’s account receivable showed a balance of P1, 100,000. Because
of continuing decrease in expected cash flows on its financial asset, Jonaxx Company has decided to estimate the cash flows of
the outstanding receivables. The estimates are based on the expected peso amount to be received on the outstanding
receivable; the category (age) which also includes the length and period of collectability and time factor for similar borrowers.
Category Amount Time factor
Elijah 400,000 .909
Azi 300,000 .826
Noah 250,000 .751
Rozen 150,000 .683

How much should Jonaxx Company report its account receivable in its December 31, 2019 statement of financial position?
a. P 799,150 b. P 901,600 c. P 1,200,000 d. P 1,400,000

16. Lance Corporation’s Accounts Receivable subsidiary ledger shows the following information:

Customer Account Balance Sales Invoices

December 31, 2018, Date Amount
Buwan Company P35,180 12/6/2018 P14,000
11/29/2018 21,180
Klwkn Inc. 20,920 9/27/2018 12,000
8/20/2018 8,920
Mundo Corp. 30,600 12/8/2018 20,000
10/25/2018 10,600
Ikaw at Ako Co. 45,140 11/17/2018 23,140
10/9/2018 22,000
Hindi na Nga Inc. 31,600 12/12/2018 19,200
12/2/2018 12,400
Kahit Ayaw Mo Na Corp. 17,400 9/12/2018 17,400

The estimated bad debts rates below are based on Lance’s receivable collection experience.
Age of Accounts Rate
0-30 days 1%
31-60 days 1.50%
61-90 days 3%
91-120 days 10%
Over 120 days 50%
The allowance method for bad debts account had a debit balance of P5,500 on December 31, 2018, before adjustments. The
allowance of bad debts to be reported at December 31, 2018, is
a. P9,699 b. P15,199 c. P4,199 d. P5,500

17. You are given the following information relating to Elle Trading:

Gross Profit based on cost 25%

Accounts Receivable, December 31, 2017, P 120,000
Allowance for bad debts, December 31, 2017, 3,000
Collections of accounts receivable in 2018 645,000
Cost of Goods Available for Sale in 2018 690,000
Merchandise Inventory, December 31, 2018, 150,000
Assuming all sales were on account and estimated bad debts was 5% of sales, what is net realizable value of accounts
receivable December 31, 2018?
a. P150,000b. 142,500 c. P116,250 d. P113,250

18. The Tully Company's ledger balance for Notes Receivable includes a note receivable from Arryn Company. Company Arryn is
undergoing bankruptcy proceedings and has negotiated for restructuring of its note, with face amount of P4,000,000, and
accrued interest of P480,000, based on interest rate of 12%. The note is due on this date, December 31, 2019. The restructuring
arrangement calls for P1.120,000 annual payment with first payment due on December 31, 2020. No further interest will be
collected during the extended four-year term. Based on the ledger balance of the company for allowance for uncollectible notes
and accounts, P 100,000 relates to this note.

What is the impairment loss on Notes Receivable on December 31, 2019?

a. P987,422 b. P978,224 c. P1,120,000 d. P4,000,000

On January 1, 2019, Finest Company sold an equipment that originally cost of P750,000. Finest Company received a P900,000
note as payment for this transaction. The note is payable in three annual installments of P300,000 beginning December 31, 2019
plus interest at the rate of 15% based on the outstanding balance. At January 1, 2019, the prevailing rate of interest for a similar
obligation is 10%.

22. What is the present value of the note at January 1, 2019?

a. P976,975 b. P97,697.50 c. P30,786 d. P746,055
23. What is the interest revenue at December 31, 2019?
a. P976,975 b. P97,697.50 c. P30,786 d. P746,055
24. Based on above statement, assuming the nominal interest is 8%, what is the balance of Discount on Notes Receivable
on January 1, 2019?
a. 976,975 b. P97,697.50 c. P30,786 d. P746,055

25. On July 1,2019 Hyungsik Corporation sold equipment to Bogum Corporation for 250,000. Hyungsik accepted a 10% note
receivable for the entire sales price. This note is payable in two equal installments of 125,000 plus accrued interest on December
31, 2019, and December 31, 2020. On July 1, 2020, Hyungsik discounted the note at a bank at an interest rate of 12%

How much was Hyungsik „s proceeds from the discounted note?

a. P121,000b. P123,375 c. P125,875 d. P129,250

26. On July 31, 2019, Elizalde Company discounted at the bank a customer’s 600,000, 6-month , 10% note receivable dated
May 31,2019. The bank discounted the note at 12%. How much is the proceeds Elizalde receive from this discounted note?
a. P564,000b. P576,000 c. P604,800 d. P617,400

27. On February 1,2019, Marga Corporation factored receivables with the carrying amount of 2,000,000 to Cassie Corporation.
Marga Corporation assesses a finance charge of 3% of the receivables and retains 5% of the receivables.
If the factoring is treated as a sale, what amount of loss from sale should the company report in its 2019 statement if
comprehensive income for the year 2019?
a. None b. P60,000 c. P100,000 d. P160,000

28. Blue Company factored 750,000 accounts receivable to Red Company on December 1, 2019. Blue Company retained
significant amount of risks and rewards of ownership and continues to manage the financial asset.
Red accepted the receivable, assessed a fee of 2% and retained a holdback equal to 4% of the accounts receivable. In addition,
Red charged 12% interest on the amount advanced.
What amount of finance cost should Blue Company report in its December 2019 statement of comprehensive income related to
the factoring of its account receivable?
a. None b. P 7,200 c. P 15,000 d. P 22,200

29. On October 31, 2019, Soriano Company engaged in the following transactions:
Obtained 500,000, six-month loan from City Bank , discounted at 12%. The company pledged 500,000 of accounts receivable as
security for the loan.
Factored 1,000,000 of accounts receivable without recourse on a non-notification on basis with Candice Gonzales Company.
Help charged a factoring fee of 2% of the amount of receivables factored and withheld 10% of the amount factored.

What is the total cash received from the financing of receivables?

a. 1,320,000 b. 1,350,000 c. 1,380,000 d. 1,470,000