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RECEIVABLES

QUIZ

1. AG Inc. made a 15,000 sale on account with the following terms: 1/15, n/30. If the company uses
the gross method to record sales made on credit, what is/are the debit(s) in the journal entry to
record the sale?
a. Debit Accounts Receivable for 14,850
b. Debit Accounts Receivable for 14,850 and Sales Discounts for 150
c. Debit Accounts Receivable for 15,000
d. Debit Accounts Receivable for 15,000 and Sales Discounts for 150

2. AG Inc. made a 15,000 sale on account with the following terms: 2/10, n/30. If the company uses
the net method to record sales made on credit, what is/are the debit(s) in the journal entry to
record the sale?
a. Debit Accounts Receivable for 14,700
b. Debit Accounts Receivable for 14,700 and Sales Discounts for 300
c. Debit Accounts Receivable for 15,000.
d. Debit Accounts Receivable for 15,000 and Sales Discounts for 300

3. An entity has outstanding accounts receivable totaling 1.27 million as of December 31 and sales
on credit during the year of 6.4 million. There is also a debit balance of 3,000 in the allowance
for doubtful accounts. If the company estimates that 1% of its net credit sales will be
uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end
adjustment to record bad debt expense?
a. 12,700
b. 15,700
c. 61,000
d. 67,000

4. An entity has outstanding accounts receivable totaling 6.5 million as of December 31 and sales
on credit during the year of 24 million. There is also a credit balance of 12,000 in the allowance
for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be
uncollectible, what will be the amount of bad debt expense recognized for the year?
a. 532,000
b. 520,000
c. 1,920,000
d. 508,000

5. At the close of its first year of operations, December 31, 2018, Riel Company had accounts
receivable of 1,080,000, after deducting the related allowance for doubtful accounts. During
2012, the company had charges to bad debt expense of 180,000 and wrote off, as uncollectible,
accounts receivable of 80,000.

What should the company report on its balance sheet at December 31, 2018, as accounts
receivable before the allowance for doubtful accounts?
a. 1,340,000
b. 1,180,000
c. 980,000
d. 880,000

A trial balance before adjustments included the following:


Debit Credit
Sales 850,000
Sales returns and allowance 28,000
Accounts receivable 86,000
Allowance for doubtful accounts 1,520

6. If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment
is
a. 13,400
b. 16,440
c. $17,000
d. $19,480

7. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount
of the adjustment is
a. 7,080
b. 8,600
c. 8,448
d. 10,120

8. On December 31, 2018, Ameen Corporation sold for 100,000 an old machine having an original
cost of 180,000 and a book value of 80,000. The terms of the sale were as follows:
20,000 down payment
40,000 payable on December 31 each of the next two years

The agreement of sale made no mention of interest; however, 9% would be a fair rate
for this type of transaction. What should be the amount of the notes receivable net of the
unamortized discount on December 31, 2018 rounded to the nearest dollar?(use four decimals
for the present value factor)
a. 70,364
b. 90,364
c. 80,000
d. 140,728

9. Sun Inc. factors 3,000,000 of its accounts receivables without recourse for a finance charge of
5%. The finance company retains an amount equal to 10% of the accounts receivable for
possible adjustments. Sun estimates the fair value of the recourse liability at 115,000.
What would be recorded as a gain (loss) on the transfer of receivables?
a. Loss of 150,000
b. Gain of 265,000
c. Loss of 565,000
d. Loss of 115,000

10. On December 31, 2018 the accounts receivable control account of Rhianne Company. had a
balance of P181,000. An analysis of the account; receivable account showed the following:
Accounts known to be worthless P2,500
Advance payments to creditors on purchase orders 10,000
Advances to affiliated companies 25,000
Customers' accounts reporting credit balance arising from sales return (15,000)
Interest receivable on bonds 10,000
Other trade accounts receivable - unassigned 50,000
Subscriptions receivable for ordinary share capital due 55,000
in 30 days
Trade accounts receivable - assigned 15,000
Trade installment receivable duel - 18 months,
(including unearned finance charges, P2,000) 22,000
Trade receivables from officers, due currently 1,500
Trade accounts on which post-dated checks are held
(no entries were made on receipts of checks) 5,000
Total P181,000
Determine the trade and other receivables to be reported on the entity's December 31, 2018
statement of financial position.
a. 166,500
b. 168,500
c. 170,000
d. 175,000

Professional Company produces paints and related products for sale to the construction industry
throughout Metro Manila. While sales have remained relatively stable despite a decline in the
amount of new construction, there has been a noticeable change in the timeliness with which
the company's customers are paying their bills.

The company sells its products on payment terms of 2/10, n/30. In the past, over 75 percent of
the credit customers have taken advantage of the discount by paying within 10 days of the
invoice date. During the year ended December 31, 2015, the number of customers taking the full
30 days to pay has increased. Current indications are that less than 60% -of the customers are
now taking the discount. Uncollectible accounts as a percentage of total credit sales have risen
from the 1.5% provided in the past years to 4% in the current year.

In response to your request for more information on the deterioration of accounts receivable
collections, the company's controller has prepared the following report:

Professional Company
Accounts Receivable Collections
December 31, 2015

The fact that some credit accounts will prove uncollectible is normal, and annual bad debt write-
offs had been 1.5% of total credit sales for many years. However, during the year 2015, this
percentage increased to 4%. The accounts receivable balance is P1,500,000, and the condition of
this balance in terms of age and probability of collection is shown below:

Proportion to total Age of accounts Probability of Collection


64% 1 - 10 days 99.0%
18% 11 - 30 days 97.5%
8% Past due 31 - 60 days 95.0%
5% Past due. 61 - 120 days 80.0%
3% Past due 121 - 180 days 65.0%
2% Past due over 180 days 20.0%

At the beginning of the year, the Allowance for Doubtful Accounts had a credit balance of
P27,300. The company has provided for a monthly bad debt expense accrual during the year
based on the assumption that 4% of total credit sales will be uncollectible. Total credit sales for
the year 2015 amounted to P8,000,000, and write-offs of uncollectible accounts during the year
totaled P292,500.

11. What is the adjusted balance of the allowance for doubtful accounts as of December 31, 2015?
a. 75,000
b. 76,100
c. 77,100
d. 78,000
12. What is the bad debt expense?
a. 60,000
b. 320,000
c. 120,000
d. 22,500
13. What is the additional required allowance for doubtful accounts?
a. 54,800
b. 52,800
c. 50,800
d. 56,800

The balance sheet of Zoey Corporation reported the following long-term receivables as of
December 31, 2014:

Note receivable from sale of plant P6, 000,000


Note receivable from officer 1,600,000

In connection with your audit, you were able to gather the following transactions during 2015
and other information pertaining to the company's long-term receivables:

a. The note receivable from sale of plant bears interest at 12% per annum. The note is
payable in 3 annual installments of •P2,000„000 plus interest on the unpaid balance
every April 1. The initial principal and interest payment was made on April 1, 2015.

b. The note receivable from officer is dated December 31, 2014, earns interest at 10% per
annum, and is due on December 31, 2017. The 2015 interest was received on December
31, 2015.

c. The corporation sold a piece of equipment to Yes, Inc. on April 1, 2015, in. exchange for
an P800,000 non-interest bearing note due on April 1., 2017. The note had no ready
market, and there was no established exchange price for the equipment. The prevailing
interest rate for a note of this type at April 1, 201.5, was 12%.. The present value factor
of 1 for two periods at 12% is 0.797.

d. A tract of land was sold by the corporation to No Co. on July 1, 2015, for P4,000,000
under an installment sale contract. No Co. signed a 4-year 11% note for P2,800,000 on
July 1, 2015, in addition to the down payment of P1,200,000. The equal annual
payments of principal and interest on the note will be P902,500 payable on July 1, 2016,
2017, 2018,and 2019. The land had an established cash price of P4,000,000, and its cost
to the corporation was P3,000,000. The collection of the-installments on this note is
reasonably assured.

14. What is the amount of noncurrent receivables as of December 31, 2015?


a. 6,192,484
b. 8,192,484
c. 6,500,484
d. 8,500,484

15. What is the current portion of long-term receivables as of December 31, 2015?
a. 2,000,000
b. 2,594,500
c. 4,000,000
d. 4,594,500

16. What is the accrued interest receivable as of December 31, 2015?


a. 360,000
b. 514,000
c. 700,000
d. 414,000

Crater Company factored without recourse P2,000,000 of accounts receivable with a bank. The finance
charge is 3% and 5% was retained to cover sales discounts, sales return and allowances.

17. What amount of cash was received on the sale of accounts receivable?
a. 1,940,000
b. 1,900,000
c. 1,840,000
d. 2,000,000

18. What amount should be recognized as loss on factoring?


a. 100,000
b. 160,000
c. 60,000
d. 0

On April 1. 2017, Jhan Company discounted with recourse a 9-month, 10% note dated January 1, 2017
with face of P6,000,000. The bank discount rate is 12%. The discounting transaction is accounted for as a
conditional sale with recognition of contingent liability.

19. What amount was received from the note discounting on April 1, 2017?
a. 6,063,000
b. 6,450,000
c. 6,150,000
d. 5,963,000

20. What should be recognized as loss on note discounting?


a. 450,000
b. 387,000
c. 87,000
d. 63,000

Apex Company accepted from a customer P1,000,000 face amount, 6-month, 8% note dated April 15,
2017. On the same date, the entity discounted the note without recourse at a 10% discount rate.

21. What amount of cash was received from the discounting?


a. 1,040,000
b. 990,000
c. 988,000
d. 972,000

22. What is the loss on note receivable discounting?


a. 50,000
b. 40,000
c. 52,000
d. 12,000
On December 31, 2017, Jermaine Company sold goods to Ianne Company. Ianne signed a noninterest
bearing note requiring a ten annual payment of 500,000 for ten years. The first payment was made on
December 31, 2018. The market rate interest for similar note was 12%.

23. What is the carrying amount of the note receivable on December 31, 2017?
a. 5,000,000
b. 2,825,000
c. 2,665,000
d. 4,500,000

24. What amount should be recognized as interest income for 2018?


a. 600,000
b. 319,800
c. 339,000
d. 300,000

25. What is the carrying amount of the note receivable on December 31, 2018?
a. 2,664,000
b. 4,500,000
c. 2,825,000
d. 2,325,000

National bank granted a loan to a borrower on January 1, 2017. The interest on the loan is 10% payable
annually starting December 31, 2017. The loan matures in three years on December 31, 2019.

Principal amount 4,000,000


Origination Fee 342,100
Direct origination cost 150,000

After considering the origination fee charged against the borrower and the direct origination cost
incurred, the effective rate on the loan is 12%.
26. What is the carrying amount of the loan receivable on January 1, 2017?
a. 4,000,000
b. 3,807,900
c. 4,150,000
d. 3,657,900
27. What is the interest income in 2017?
a. 400,000
b. 380,900
c. 456,948
d. 480,000

28. What is the carrying amount of the loan receivable on December 31, 2017?
a. 4,000,000
b. 3,807,900
c. 3,864,848
d. 3,750,932

29. What is the interest income for 2018?


a. 480,000
b. 400,000
c. 386,485
d. 463,782
On December 31, 2017, BPI recorded an investment of P5,000,000 in a loan granted to a client. The loan
has 10% effective interest rate payable annually every December 31. The principal is due in full at
maturity on December 31, 2020.

Unfortunately, the borrower is experiencing significant financial difficulty and will have difficult time in
making full payment.

The bank projected that the entire principal will be paid at maturity and 4% interest or P200,000 will be
paid annually on December 31 of the next three years. There is no accrued interest on December 31,
2017.

The present value of 1 at 10% for three periods is .75 and the present value of ordinary annuity of 1 at
10% for three periods is 2.49.

30. What is the loan impairment loss for 2017?


a. 752,000
b. 600,000
c. 250,000
d. 748,000

31. What is the interest income for 2018?


a. 200,000
b. 424,800
c. 224,800
d. 500,000

32. What is the carrying amount of the loan receivable on December 31, 2018?
a. 5,000,000
b. 3,750,000
c. 4,472,800
d. 4,672,800
33. Long-term notes receivable which nominally bear no interest or an interest which is
unreasonably low should be recognized initially at
a. Face value
b. Present value
c. Maturity value
d. Net realizable value

34. Trade receivables are classified as current assets when they are reasonably expected to be
realized in cash
a. Within one year
b. Within the normal operating cycle.
c. Within one year or within the normal operating cycle whichever is shorter.
d. Within one year or within the normal operating cycle whichever is longer.

35. If a company employs the gross method of recording accounts receivable from customers, the
sales discount taken should be reported as
a. Deduction from sales in the income statement
b. Other expense in the income statement
c. Deduction from accounts receivable in determining the net realizable value of accounts
receivable.
d. Sales discount forfeited in the cost of goods sold section of the income statement.

36. Assuming that the ideal measure of short-term receivables in the balance sheet is the
discounted value of cash to be received in the future, failure to follow this practice usually does
not make the balance sheet misleading because
a. Most short-term receivables are noninterest bearing
b. The allowance for uncollectible accounts includes a discount element.
c. The amount of the discount is not material.
d. Most receivables can be sold to a bank or factor.

37. A company uses the allowance method of recognizing doubtful accounts. The entry to record the
writeoff of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable.

38. When a specific customer’s account receivable is written off as uncollectible, what will be the
effect on net income under each of the following methods of recognizing bad debts expense?
Allowance Direct writeoff
a. None Decrease
b. Decrease None
c. Decrease Decrease
d. None None
39. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of an account previously written off would
a. Disclosed in the notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosures
d. Excluded from the total receivables and a gain or loss is recognized between the face value and
the amount of borrowings.
40.The allowance method of recognizing bed debt expense can be applied is more than one way. What
two conditions must be met before the allowance method can be used?
a. Bad debts must be expected and material.
b. Bad debts must be relevant and reliable
c. Bad debts must be probable and estimable
d. Bad debts must be consistent over time and the method used to estimate them must be
consistently applied.