1. Nontrade receivables are classified as current assets only if reasonably expected to be
realized in cash
a. Within one year or within the operating cycle, whichever is shorter.
b. Within one year or within the operating cycle, whichever is longer.
c. Within the normal operating cycle.
d. Within one year, the length of the operating cycle notwithstanding.
2. Why is the allowance method preferred over the direct writeoff method of accounting
for bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining the worthless accounts under direct writeoff method is difficult to do.
d. Improved matching of bad debt expense with revenue.
3. The entry in debiting accounts receivable and crediting allowance for doubtful
accounts would be made when
a. A customer pays an account balance.
b. A customer defaults on the account.
c. A previously defaulted customer pays the balance.
d. Estimated uncollectible accounts are too low.
4. Which is an accurate method of determining the amount of the adjustment to bad
debt expense?
a. A percentage of sales adjusted for the balance in the allowance.
b. A percentage of sales not adjusted for the balance in the allowance.
c. A percentage of receivables not adjusted for the balance in the allowance.
d. An amount derived from aging accounts receivable and not adjusted for the balance in
the allowance.
5. A debit balance in the allowance for doubtful accounts
a. Should never occur.
b. Is always the result of management not providing a large enough allowance in order to
manage earnings.
c. May occur before the year-end adjustment for uncollectible accounts.
d. May exist even after the year-end adjustment for uncollectible accounts.
6. Accounting for the interest in a noninterest bearing note receivable is an example of
what aspect of accounting theory?
a. Relevance
b. Verifiability
c. Substance over form
d. Prudence
7. Only July 1 of the current year, an entity received a one-year note receivable bearing
interest at the market rate. The face amount of the note receivable and the entire amount
of the interest are due on June 30 of next year, the entity should report in the statement
of financial position
a. A deferred credit for interest applicable to next year.
b. No interest receivable.
c. Interest receivable for the entire amount of the interest due on June 30 of next year.
d. Interest receivable for the interest accruing in the current year.
8. When an entity factored accounts receivable without recourse with a bank the
transaction is best described as
a. Bank loan collateralized by the accounts receivable.
b. Bank loan to be repaid by the proceeds from the accounts receivable.
c. Sale of accounts receivable to the bank, with risk of uncollectible accounts retained by
the entity.
d. Sale of accounts receivable to the bank, with the risk of uncollectible accounts
transferred to the bank.
9. If the financial assets are exchanged for cash but the transfer does not meet the criteria
for a sale, the transaction should be accounted for as
a. Secured borrowing
b. Pledge of collateral
c. Both secured borrowing and pledge of collateral
d. Neither secured borrowing nor pledge of collateral
10. The note receivable discounted account is reported as
a. Contra asset account for the proceeds from discounting
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.
11.
a. 1,640,000
b. 1,780,000
c. 1,670,000
d. 1,630,000
12. WWW Company started its business on January 1, 2022. After considering the
collection experience of other entities in the industry, WWW established allowance for
doubtful accounts estimated at 5% of credit sales. Outstanding accounts receivable
recorded on December 31, 2022 totaled P460,000 while the allowance for doubtful
accounts had a credit balance of P50,000 after recording estimated doubtful accounts
expense for December and after writing off P10,000 of uncollectible accounts.
Further analysis of the entity’s accounts showed that merchandise purchased amounted
to P1,800,000 and ending merchandise inventory was P300,000. Goods were sold at 40%
above cost. The total sales comprised 80% sales on account and 20% cash sales. Total
collections from customers, excluding cash sales, amounted to P1,200,000.
What is the effect of the transactions on the accounts receivable and allowance for
doubtful accounts?
a.10,000 understated 24,000 understated
b.20,000 understated 34,000 understated
c.330,000 understated 40,000 understated
d.330,000 understated 50,400 understated
13. AG Inc. made a P15,000 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 P14,700.
b. Debit Accounts Receivable for P14,700 and Sales Discounts for P300.
c. Debit Accounts Receivable for P15,000.
d. Debit Accounts Receivable for P15,000 and Sales Discounts for P300
14. Wellington Corp. has outstanding accounts receivable totaling P1.27 million as of
December 31 and sales on credit during the year of P6.4 million. There is also a debit
balance of P3,000 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. P12,700.
b. P15,700.
c. P61,000.
d. P67,000.
15. During the year, Kiner Company made an entry to write off a P16,000 uncollectible
account. Before this entry was made, the balance in accounts receivable was P200,000
and the balance in the allowance account was P18,000. The net realizable value of
accounts receivable after the write-off entry was
a. P200,000.
b. P198,000.
c. P166,000.
d. P182,000.
16.
a. 230,000
b. 150,000
c. 200,000
d. 100,000
17. Boracay Company uses the statement of financial position approach in estimating
uncollectible accounts expense. The entity prepares an adjusting entry recognize this
expense at the end of the year. During the year, the entity wrote off a P100,000 receivable
and made no recovery of previous writeoff. After the adjusting entry for the year, the
credit balance in the allowance for doubtful accounts was P250,000 larger than it was on
January 1. What amount of uncollectible account expense was recorded for the year?
a. 250,000
b. 150,000
c. 100,000
d. 350,000
18.
a. 640,700
b. 340,700
c. 300,000
d. 597,500
19.
a. P9,000
b. P11,000
c. P13,000
d. P27,000
20. Smart Corporation had a 1/1/12 balance in the Allowance for Doubtful Accounts of
P25,000. During 2022, it wrote off P18,000 of accounts and collected P5,250 on accounts
previously written off. The balance in Accounts Receivable was P500,000 at 1/1 and
P600,000 at 12/31. At 12/31/22, Smart estimates that 5% of accounts receivable will prove
to be uncollectible. What should Smart report as its Allowance for Doubtful Accounts at
12/31/22?
a. P12,000.
b. P12,250.
c. P17,250.
d. P30,000
21.
a. P50,000.
b. P46,000
c. P32,000
d. P18,000
22. On December 1, 2022, Palawan Company assigned specific accounts receivable
totaling P2,000,000 as collateral on a P1,500,000, 12% note from a certain bank. Palawan
Company will continue to collect the assigned accounts receivable. In addition to the
interest on the note, the bank also charged a 5% finance fee deducted in advance on the
P1,500,000 value of the note. The December collections of assigned accounts receivable
amounted to P1,000,000 less cash discounts of P50,000. On December 31, 2022, Palawan
Company remitted the collections to the bank in payment for the interest accrued on
December 31, 2022 and the note payable.
What amount of cash was received from the assignment of accounts receivable on
December 1, 2022?
a. 2,000,000
b. 1,900,000
c. P1,500,000
d. P 1,425,000
23. Bohol Company factored P6,000,000 of accounts receivable to a finance entity on
October 1, 2022.Control was surrendered by Bohol Company. The factor assessed a fee of
3% and retains a holdback equal to 5% of the accounts receivable. In addition, the factor
charged 15% interest computed on a weighted average time to maturity of the accounts
receivable of 54 days.
What is the amount of cash initially received by Bohol Company from the factoring?
a. P5,296,850
b. P5,476,850
c. P5,386,850
d. P5,556,850
24. Bohol Company factored P6,000,000 of accounts receivable to a finance entity on
October 1, 2022.Control was surrendered by Bohol Company. The factor assessed a fee of
3% and retains a holdback equal to 5% of the accounts receivable. In addition, the factor
charged 15% interest computed on a weighted average time to maturity of the accounts
receivable of 54 days.
If all accounts are collected, what is the cost of factoring the accounts receivable?
a. P315,150
b. P433,150
c. P180,000
d. P613,150
25. On June 30, 2022, RJ Company discounted at the bank a customer’s P6,000,000, 6month, 10% note receivable dated April 30,2022. The bank discounted the note at 12%
without recourse.
What is the amount received from the note receivable discounting?
a. P5,640,000
b. P5,760,000
c. P6,048,000
d. P6,174,000
26. On June 30, 2022, RJ Company discounted at the bank a customer’s P6,000,000, 6month, 10% note receivable dated April 30,2022. The bank discounted the note at 12%
without recourse.
What is the loss on note receivable discounting?
a. P252,000
b. P152,000
c. P52,000
d. P48,000
27. Potty Company is a dealer in equipment. On December 31, 2022, Potty Company sold
an equipment in exchange for a noninterest bearing note requiring five annual payments
of P500,000. The first payment was made on December 31, 2023. The market value for
similar notes was 8%. The relevant present value factors are:
PV of 1 at 8% for 5 periods
0.68
PV of an ordinary annuity of 1 at 8% for 5 periods
3.99
In December 31, 2022 statement of financial position, what should Potty report as note
receivable?
a. P2,500,000
b. P1,995,000
c. P1,700,000
d. P1,495,000
28. Potty Company is a dealer in equipment. On December 31, 2022, Potty Company sold
an equipment in exchange for a noninterest bearing note requiring five annual payments
of P500,000. The first payment was made on December 31, 2023. The market value for
similar notes was 8%. The relevant present value factors are:
PV of 1 at 8% for 5 periods
0.68
PV of an ordinary annuity of 1 at 8% for 5 periods
3.99
What interest income should be reported for 2023?
a. P505,000
b. P101,000
c. P159,600
d. P119,600
29.
a. P8,200,000
b. P6,200,000
c. P5,000,000
d. P6,000,000