THEORY OF ACCOUNTS

TOA_02: LOANS AND RECEIVABLES

LET’S GO!

1) The category ‘trade receivable’ includes

A. Advances to officers and employees
B. Income tax refunds receivable
C. Claims against insurance companies for casualties sustained
D. Open accounts resulting from short-term extensions of credit customers.

2) Trade receivables are classified as current assets when they are reasonably expected to be collected
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

3) Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in cash
A. Within one year or normal operating cycle, whichever is shorter
B. Within the normal operating cycle
C. Within one year or normal operating cycle, whichever is shorter
D. Within one year, the length of the operating cycle notwithstanding

4) Receivables from subsidiaries and affiliates, if significant should be classified as

A. Current assets
B. Noncurrent assets
C. Either as noncurrent or current depending on the expectation of realizing them within one year or over one year
D. Intangible asset

5) Trade discounts are

A. Not recorded in the accounts; rather they are a means of computing a price
B. Used to avoid frequent changes in catalogues
C. Used to quote different prices for difference quantities purchased
D. All of the above

6) Which of the following is true regarding cash discounts?

A. Purchase discount is recognized under the gross price method at the time of purchase of goods.
B. Purchase discount lost is recorded under the gross price method when the cash discounts are taken.
C. Purchase discount lost is recorded under the net price method when the cash discounts are taken.
D. Purchase discount is recorded under the gross price method when the cash discounts are taken.

7) The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made when
A. A customer pays its account balance
B. A customer defaults on its account
C. A previously defaulted customer pays its outstanding balance
D. Estimated uncollectible receivables are too low

8) If a company employs the gross method of recoding accounts receivable from customers, then sales discounts taken
should be reported as
A. A deduction from sales in the income statement
B. An item of ‘other income and expense’ in the income statement
C. A deduction from accounts receivable in determining the net realizable value of accounts receivable
D. Sales discounts forfeited in the cost of goods sold section of the income statement

9) Which of the following is not permitted for material amount of uncollectible accounts receivable?
A. Percentage of accounts receivable using allowance method
B. Percentage of sales using allowance method
C. Direct write-off method
D. All of the choices are acceptable

10) Which of the following accounting principles primarily supports the use of allowance for doubtful accounts?
A. Continuity principle C. Matching principle
B. Full disclosure principle D. Cost principle
11) Under the direct-write-off method, uncollectible accounts expense is recognized
A. As a percentage of net sales during the period.
B. As a percentage of net credit sales during the period.
C. As indicated by aging the accounts receivable at the end of the period.
D. As specific accounts receivable are determined to be worthless.

12) When the direct write-off method of recognizing bad debts expense is used, the entries at the time of collection of an
account previously written off would
A. Increase the net realizable value of the accounts receivable
B. Decrease the net realizable value of the accounts receivable
C. Increase net income
D. Decrease net income
13) When the direct write-off method of recognizing bad debts expense is used, the entry to write-off a specific customer
account would
A. Increase net income C. Increase both accounts receivable and net income
B. Have no effect on net income D. Decrease both accounts receivable and net income
14) When the direct writeoff method is used, the entry to write off a specific customer account would
A. Increase both accounts receivable and net income C. Increase net income
B. Decrease both accounts receivable and net income D. Have no effect on net income
15) A method of estimating doubtful accounts that focuses on the income statement rather than the statement of financial
position is the allowance method based on
A. Direct write-off C. Credit sales
B. Aging of trade account receivable D. Balance of accounts receivable
16) Estimation of uncollectible accounts receivable based on a percentage of sales
A. Emphasizes measurement of net realizable value of accounts receivable
B. Emphasizes measurement of bad debt expense
C. Emphasizes measurement of total assets
D. Is only acceptable for tax purposes

17) An entity uses the allowance method for recognizing doubtful accounts. The entry to record the write off of specific
uncollectible account.
A. Affects neither net income nor working capital C. Decreases both net income and working capital
B. Affects neither net income nor account receivable D. Decreases both net income and accounts receivable
18) Which of the following methods may not be appropriate for estimating bad debt expense?
A. Individual or collective assessment of outstanding receivables
B. Percentage of outstanding accounts receivable
C. Aging of accounts receivable
D. Percentage of income

19) Shot-term non-interest bearing note receivable are usually recorded at their:
A. Present value B. Net realizable value C. Discounted value D. Maturity value

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

21) Statement 1: interest bearing long-term receivable shall be stated at face value.
Statement 2: non-interest bearing long-term receivables shall be stated at present value.
Statement 3: short-term receivable, interest bearing or not, are generally stated at face value.
A. All statements are true C. Only statement II is false
B. Only statement I is true D. Only statement III is false

22) A loan receivable is initially measured at

A. Fair value
B. Fair value plus transaction costs that are directly attributable to the acquisition
C. Maturity value
D. Maturity value plus transaction costs that are directly attributable to the acquisition

TOA_02: LOANS AND RECEIVABLES PAGE 2 OF 9
23) Initially, interest-bearing notes receivable
A. Shall be measured as historical cost C. Shall be measured at present value
B. Shall be measured at face value D. Shall be measured at net realizable value

24) How should unearned interest included in the face amount of notes receivable be presented on the statement of
financial position?
A. As a deferred credit C. In the footnotes
B. As a deduction from the related receivable D. As a current liability

25) For banks and financial institutions, receivables arise primarily from
A. Loans B. Deposits C. Withdrawals D. Credit sales

26) This includes compensation for activities such as evaluating the borrower’s financial condition, evaluating guarantees,
collateral and other security, negotiating the terms of the loan, preparing and processing documents and closing the
loan transaction.
A. Direct origination cost B. Origination fees C. Service charges D. Loans

27) Loan receivable is subsequently measured at

A. Fair value C. Fair value plus transaction cost
B. Fair value minus transaction cost D. Amortized cost

28) When testing loans and note receivables for impairment, the rate that should be used is
A. the current market rate as of date of impairment testing
B. the weighted average rate on the remaining term before maturity of note
C. the original effective rate of the note
D. the weighted average rate over the total life of the note

29) If there is evidence that an impairment loss on a loan receivable has been incurred, the loss is equal to the
A. Excess of the carrying amount of the loan receivable over the present value of the cash flows related to the loan.
B. Excess of the present value of cash flows related to the loan over the carrying amount of the loan receivable.
C. Excess of the carrying amount of the loan over the principal amount of the loan
D. Excess of the principal amount of the loan over its carrying amount.

30) If receivables are hypothecated against borrowings, the amount of receivables involved should be
A. Disclosed in the statements or notes
B. Excluded from the total receivables, with disclosure
C. Excluded from the total receivables, with no disclosure
D. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of
borrowings

31) When accounts receivable are factored without recourse, what amount does the transferor credit?
A. Accounts receivable assigned C. Liability
B. Sales D. Accounts receivable

32) When a note receivable is dishonored, it is debited to

A. Accounts receivable at face value
B. Dishonored note receivable at face value
C. Accounts receivable at face value plus interest and other charges
D. Dishonored note receivable at face value plus interest and other charges

33) The assignor’s equity in assigned account that is required to be disclosed in the notes is equal to the
A. Assigned accounts receivable
B. Bank loan balance
C. Assigned accounts receivable minus the bank loan balance
D. Bank loan balance minus the assigned accounts receivable

34) When accounts receivables are factored

A. Payable to factor is credited C. A contingent liability is ordinary created
B. Accounts receivable should be credited D. It should be accounted for as a secured borrowing

35) It is a predetermined amount withheld by a factor as a protection against customer returns, allowances and other
special adjustments.
A. Equity in assigned accounts C. Factor’s holdback
B. Service charge D. Loss on factoring

36) Which of the following is true when accounts receivable are factored without recourse?
A. The transaction may be accounted for as either a secured borrowing or as a sale.
B. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.
C. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables.
D. The financing cost should be recognized ratably over the collection period of the receivables.

TOA_02: LOANS AND RECEIVABLES PAGE 3 OF 9
37) If a note receivable is discounted without recourse
A. Note receivable should be credited
B. Liability for note receivable discounted should be credited
C. The transaction should be accounted for as a secured borrowing as opposed to a sale
D. The contingent liability may be disclosed in either a contra receivable or a note to the FS

38) What is “recourse” as it relates to selling receivables?

A. The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.
B. The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay.
C. The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to
the sale.
D. The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected.

39) A 90-day, 15% interest-bearing note receivable is sold to a bank with recourse after being held for 60 days. The
proceeds are calculated using a 12% interest rate. The amount credited to notes receivable at the date of the
discounting transactions would be
A. The same as the cash proceeds C. The face value of the note
B. Less than the face value of the note D. The maturity value of the note

40) A loss on discounting of notes receivable is recorded when of discounting is made.

A. With recourse B. Without recourse C. A secured borrowing D. With or without recourse

41) A 120-day, 15% interest bearing note receivable is discounted to a bank at 18% after being held for 45 days. The
proceeds received from the bank upon discounting would be the
A. Maturity value less discount at 18% for 120 days C. Maturity value less discount at 18% for 75 days
B. Maturity value less discount at 18% for 45 days D. Face value less than the discount at 15%

42) When a note discounted with recourse is dishonored by the maker the bank (endorsee) would usually charge the
endorser an amount equal to
A. The face amount of the note C. The proceeds upon discounting
B. The maturity value of the note D. The desired amount by the bank

END OF HO_02: LOANS AND RECEIVABLES

TOA_02: LOANS AND RECEIVABLES PAGE 4 OF 9
 SELF-TEST
1) Which of the following is a trade receivable?
A. Claims against shipping company for damaged goods or lost goods.
B. Advances to officers and employees.
C. Receivable arising from legal service rendered by a law firm.
D. Accrued interest on notes receivable.

2) Which of the following items is not a trade receivable?

A. Customer’s accounts on which post-dated checks are held.
B. Claims from employees representing selling price of goods sold under normal condition.
C. Claims from employees representing cash advances.
D. None of the above.

3) Which of the following items may not affect the accounts receivable account?
A. Dishonored notes C. Accounts written off as worthless
B. Settlement of accounts with promissory note D. Recovery of accounts of previously written off
4) Which of the following statements is not true regarding trade discounts?
A. Trade discounts are means of converting a catalog list price to the prices actually charged to the buyer.
B. Trade discounts are used to avoid frequent changes in catalogs and to hide the true invoice price from competitors.
C. Trade discounts are recognized for financial reporting purposes.
D. Trade discounts are always deducted from the list price in recording accounts receivable arising from a credit sale
transaction.

5) Receivables denominated in foreign currency should be translated in the balance sheet at

A. Exchange rate on the balance sheet date C. Average exchange rate during the year
B. Exchange rate on date of the transaction D. Exchange rate at the beginning of the year
6) The credit balance in customer’s accounts should be
A. Netted against the debit balances in other customer’s accounts.
B. Presented separately as currently liability.
C. Reported as a loss contingency.
D. Reported as a valuation account to receivables.

7) What is the normal journal entry for recording bad debts expense under direct write-off method?
A. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
B. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
C. Debit Bad Debt Expense, credit Accounts Receivable.
D. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.

8) When specific customer’s account is written off by a company using the allowance method, the effect on net income,
accounts receivable, and allowance for uncollectible accounts are?
Net income Accounts receivable Allowance for uncollectible accounts
A. No effect No effect Decrease
B. Increase No effect No effect
C. Increase Decrease Decrease
D. No effect Decrease Decrease
9) A company uses the allowance method to recognize uncollectible accounts expense. What is the effect at the time of
the collection of account previously written off on each of the following accounts?
Allowance for bad debt Bad debt expense Allowance for bad debt Bad debt expense
A. No effect No effect C. Increase Decrease
B. Increase No effect D. No effect Decrease
10) A non-interest bearing note received in exchange for property goods or service is recorded at
A. Fair market value of property goods or service or note whichever is more reliably determined.
B. Maturity value of the note.
C. Face value of the note.
D. Carrying amount of the property.

11) Which of the following is a method to generate cash from accounts receivable?
Assignment Factoring Praying Assignment Factoring Praying
A. Yes No Yes C. No Yes No
B. Yes Yes No D. No No Yes

TOA_02: LOANS AND RECEIVABLES PAGE 5 OF 9
12) On Jaybo’s December 31, 2021 balance sheet, a note receivable was reported as a noncurrent asset and its accrued
interest for eight months was reported as a current asset. Which of the following terms would fit Jaybo’s note
receivable?
A. Both principal and interest amounts are payable on April 30, 2022 and April 30, 2023.
B. Principal and interest are due December 31, 2023.
C. Both principal and interest amounts are payable on December 31, 2022 and December 31, 2023.
D. Principal is due April 30, 2023 and interest is due April 30, 2022 and April 30, 2023.

13) A three-year non-interest bearing note was received from Jaybo Company exchange for services rendered. The fair
value of the services is not immediately available but the fair value of interest on similar note obligation is 12%. The note
is due after three years at what amount should this note be shown on the statement of financial position at the end of
the first year?
A. At face amount less discount on note receivable C. At face amount plus interest earned
B. At face amount plus discount on note receivable D. At face amount minus interest earned
14) Discount on notes receivable is initially recognized in the accounts if:
A. The present value of the note exceeds its face value
B. The rate of interest stated on the note is less than market rate of interest for similar instruments
C. The rate of interest stated on the note is exceeds than market rate of interest for similar instruments
D. The rate of interest stated on the note is equal than market rate of interest for similar instruments

15) If receivables are pledged against borrowings, the amount of receivable involved should be
A. Disclosed in the statement or notes there to
B. Exclude from the total receivable, with disclosures
C. Exclude from the total receivable, with no disclosure
D. Exclude from the total receivable and a gain or loss is recognized between the face value and the amount of
borrowings.

16) What is “recourse” as it relates to selling receivables?

A. The obligation of the seller of the receivables to pay the purchases in case the debtor fails to pay.
B. The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay.
C. The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to
the sale.
D. The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected.

17) Which of the following is true when accounts receivable are factored without recourse?
A. The transaction may be accounted for either as a secured borrowings or as a sale, depending upon the substance
of the transaction.
B. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.
C. The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables.
D. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables.

18) A loss on discounting of notes receivable is recorded when of discounting is made.

A. With recourse B. Without recourse C. A secured borrowing D. With or without recourse

19) A 190-day 15% interest bearing note receivable was immediately discounted at a bank at 12% the proceeds received
from the bank upon discounting would be the
A. Maturity value less discount at 15% C. Face value less discount at 15%
B. Maturity value less discount at 12% D. Face value less discount at 12%

20) All of the following would be regarded as financial instrument, except

A. Note payable B. Receivables C. Cash D. Equipment
21) A compensating balance is best reflected by which of the following?
A. A savings account maintained at the bank equal to the amount of all outstanding loans.
B. An amount of capital stock held in the company’s treasury equal to outstanding loan commitments.
C. The portion of any demand deposit, time deposits, or certificate of deposit maintained by the entity which constitute
support for existing borrowing arrangements of the entity with a lending institution.
D. A balance held in a time or demand deposit account that is equal to the interest currently due on a loan.

22) Jaybo Company uses the allowance method in recognizing uncollectible accounts. Ignoring deferred taxes, the entry to
record the write-off of a specific uncollectible account
A. Affects neither net income nor working capital C. Affects neither net income nor accounts receivable
B. Decreases both net income and accounts receivable D. Decreases both net income and working capital

TOA_02: LOANS AND RECEIVABLES PAGE 6 OF 9
23) If a company employs the gross method of recording receivable from customers, then sales discounts taken should be
A. Reported as a deduction from sales in the income statement.
B. Reported as an item of other expense in the income statement.
C. Reported as a deduction from accounts receivable in determining the net realizable value.
D. Reported as sales discounts forfeited in the cost of sales section of the income statement.

24) All of the following are characteristics of financial assets classified as loan and receivables, except:
A. They have fixed or determinable payments.
B. The holder can recover substantially all of its investment (unless there has been credit deterioration).
C. They are not quoted in an active market.
D. The holder has demonstrated positive intention and ability to hold them to maturity.

25) If the gross amount of receivables includes unearned interest or finance charges
A. these should be presented in the statement of financial position as liability.
B. these should be deducted in arriving at the net amount to be presented in the statement of financial position.
C. these should be added in arriving at the net amount to be presented in the statement of financial position.
D. these should be ignored.
26) A company received two one-year notes in payment for merchandise sold. One note has a face amount of P6,000 and
was interest-bearing at an annual rate of 18 percent. The other note has a face amount of P7,080 and was non-
interest-bearing (its implied interest rate was 18 percent)
A. The total amount of cash ultimately to be received will be more for the interest-bearing note.
B. Both notes will cause the same total interest to be recognized.
C. The amount of interest revenue which should be recognized is more for the interest-bearing note.
D. The amount which should be credited to sales revenue is more for the noninterest-bearing note
27) Which of the following is not a valid comparison between pledging and assignment of accounts receivable?
A. Under pledge, all accounts receivables are set as collateral security for borrowings; under assignment only specific
receivables are set as collateral security.
B. In pledging, the lender has limited rights to inspect the borrower’s records to achieve assurance that the
receivables do exist; in assignment the lender will make an investigation of the specific receivables that are being
proposed for assignment and will approve those that are deemed worthy to be held as collateral security.
C. No journal entry is made for the pledged receivables; an entry is made for the assigned receivables.
D. Pledged accounts receivable remain the assets of the borrower and continue to be presented in its financial
statements, with appropriate disclosure of the pledge transaction; assigned receivables are assets of the
lender/assignee but the assignment is disclosed in the financial statements of the borrower/assignor.
28) It involves the outright sale of receivables to a financing institution known as a factor.
A. Pledging B. Assignment C. Factoring D. Selling
29) If the records of an entity show a balance in a “Due from factor” or “Factor’s holdback” account, it can be reasonably
inferred that accounts receivables have been
A. Pledged B. Assigned C. Factored D. Discounted
30) When accounts receivables are factored on a “with recourse” basis, the factoring is usually treated as
A. a secured borrowing
B. an outright sale
C. a transfer of financial asset without recognition of liability created in the transfer.
D. derecognition of financial asset when the transferor neither transfers nor retains substantially all the risks and
rewards of ownership of the financial asset and has not retained control. The transferor recognizes separately as
assets or liabilities any rights and obligations created in the transfer, such as the proceeds on the factoring and the
recourse obligation.
31) The “amortized cost” of loan receivable is the amount at which
A. The loan receivable is measured initially minus principal repayment, plus or minus the cumulative amortization of any
difference between the initial amount recognized and the principal maturity amount, minus reduction for impairment.
B. The loan receivable is measured initially minus principal repayment, plus or minus the cumulative amortization of any
difference between the initial amount recognized and the principal maturity amount.
C. The loan receivable is measured initially
D. The loan receivable is measured initially minus principal repayment

32) It is a predetermined amount withheld by a factor as a protection against customer returns, allowances and other
special adjustments.
A. Equity in assigned accounts C. Service charge
B. Commission D. Factor’s holdback
33) A company writes off as uncollectible an account receivable from a bankrupt customer. The company has an adequate
amount in its Allowance for Bad debts. This transaction will
A. Decrease profit for the period C. Decrease the amounts of owner’s equity
B. Decrease total current assets D. Have no effect on total current assets


TOA_02: LOANS AND RECEIVABLES PAGE 7 OF 9
34) Notes receivable discounted with recourse should be
A. Included in total receivables with disclosure of contingent liability
B. Included in total receivables without disclosure of contingent liability
C. Excluded from total receivables with disclosure of contingent liability
D. Excluded from total receivables without disclosure of contingent liability
35) Per requirement of PFRS, an entry should be made to the bad debt expense account
A. When an account receivable with terms 2/10, n/30 is past thirty-day due
B. When an account receivable previously written off is determined to be collectible
C. When an account receivable is determined not to be collectible and is written off
D. In the period when a sale is made and not when the receivable associated with the sale is determined to be
uncollectible
36) A debit balance in the allowance for doubtful account
A. Should never occur
B. May occur before the end-of-period adjustment for uncollectibles
C. May exist even after the end-of-period adjustment for uncollectibles
D. Is always the result of management not providing a large enough allowance in order to manage earnings
37) When the direct write-off method of recognizing bad debts expense is used, the entries at the time of collection of an
account previously written off would
A. Increase the net realizable value of the accounts receivable
B. Decrease the net realizable value of the accounts receivable
C. Increase net income
D. Decrease net income
38) AAA 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. When added to the total of accounts written off during the year, this new sum is the desired credit balance of the
allowance account.
C. It is the amount that should be added to the allowance for uncollectible accounts at year-end.
D. It is the amount of uncollectible accounts expense for the year.
39) How should unearned interest included in the face amount of notes receivable be presented on the statement of
financial position?
A. As a deferred credit C. In the footnotes
B. As a deduction from the related receivable D. As a current liability

40) If a note is exchange for property and no interest rate is stated, the note is recorded at
A. Fair market value of the property or note C. Face value of the note
B. Maturity value of the note D. Carrying value of the property

41) On April 1, 2020, a company 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 March 31, 2021. The interest receivable account
at June 30, 2010 would consist of the amount representing
A. The excess on April 1, 2020 of the present value of the notes receivable over its face value
B. Three months of accrued interest income
C. Nine months of accrued interest income
D. Twelve months of accrued interest income
42) At the beginning of 2014, AAA Company received a three-year zero-interest-bearing P60,000 note receivable for
merchandise sold. The market rate for equivalent notes was 8% at that time. AAA reported this note as charge to
notes receivable and a credit to sales revenue for P60,000. What effect did this accounting for the note have on Evan’s
profit for 2014, 2015, 2016, and its retained earnings at the end of 2016, respectively?
A. Overstate, overstate, overstate, overstated C. Overstate, understate, no effect
B. Overstate, overstate, understate, no effect D. Overstate, understate, understate, understate

43) Receivable from officers, employees, or affiliated companies should be reported in the statement of financial position as
A. Current assets, if collectible within twelve months or operating cycle, whichever is longer.
B. Noncurrent assets only
C. Current assets, if collectible within twelve months
D. Offsets to capital
44) If a note is exchange for property and no interest rate is stated, the note is recorded at
A. Fair market value of the property or note C. Face value of the note
B. Maturity value of the note D. Carrying value of the property

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45) Which of the following statements is true?
A. When a specified customer’s account which had already been written off is later collected, sales revenue is
increased by the amount of the recovery.
B. A non-interest bearing note is measured on the statement of financial position at face value less the amount of
unamortized discount.
C. When individual customers’ accounts have credit balances of material amounts, these amounts must be deducted
from the debit balance in other customers’ accounts in the statement of financial position.
D. It is appropriate to measure the impairment on receivable based on recognized sales or other revenues.
46) Assuming that the ideal measure of short-term receivables in the statement of financial position is the discounted value
of the cash to be received in the future, failure to follow this practice usually does not make the statement of financial
position misleading because
A. Most short-term receivables are not interest 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

47) On April 1, 2015, a company 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 March 31, 2016. The interest receivable account
at June 30, 2015 would consist of the amount representing
A. The excess on April 1, 2015 of the present value of the notes receivable over its face value.
B. Three months of accrued interest income
C. Nine months of accrued interest income
D. Twelve months of accrued interest income
48) At the beginning of 2015, Evans Company received a three-year zero-interest-bearing P60,000 note receivable for
merchandise sold. The market rate for equivalent notes was 8% at that time. Evans reported this note as charge to
notes receivable and a credit to sales revenue for P60,000. What effect did this accounting for the note have on Evan’s
profit for 2015, 2016, 2017, and its retained earnings at the end of 2012, respectively?
A. Overstate, understate, understate, understate C. Overstate, overstate, overstate, overstate
B. Overstate, understate, understate, no effect D. Overstate, overstate, understate, no effect
49) Which of the following accounts is not affected when an account receivable written off as uncollectible is unexpectedly
collected?
A. Cash B. Accounts receivable C. Bad debt expense D. Allowance for bad debt

50) Credit balances in accounts receivable should be classified as

A. Current liability C. Noncurrent liability
B. Part of accounts payable D. Deduction from accounts receivable

END OF SELF-TEST

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