New Era University – Lipa City Branch

College of Business Administration

Quiz#4 - Accounts Receivable & Notes Receivable

Name: Caila Nicole Reyes

Year / Course: BS-accountancy

I. Multiple Choice (Theories). Write the letter of the correct answer before the number.

1. 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

2. Pagudpud Company received a seven-year zero interest-bearing note on February 22, 2019, in exchange for property
it sold to Rear Company. There was no established exchange price for this property and the note has no ready market.
The prevailing rate of interest for a note of this type was 7% on February 22, 2019, 7.5% on December 31, 2019, 7.7% on
February 22, 2020, and 8% on December 31, 2020. What interest rate should be used to calculate the interest income from
this transaction for the years ended December 31, 2019 and 2020, respectively?
A. 0% and 0%
B. 7% and 7.7%
C. 7% and 7%
D. 7.5% and 8%

3. Which of the following statements is true concerning presentation of receivables in the statement of financial position?
A. Trade receivables and non-trade receivables are shown separately.
B. Non-trade receivables are presented as noncurrent assets.
C. Trade accounts receivable and trade notes receivable shall be presented separately.
D. Trade receivables and non-trade receivables which are currently collectible shall be presented as one-line item called
“trade and other receivables”.

4. Which of the following should be recorded in accounts receivable?

A. Receivable from officers C. Dividends Receivable
B. Receivable from subsidiaries. D. Sales on account

5. Which method of accounting for bad debt loss is consistent with accrual accounting?
A. Allowance method C. Percent of sales method
B. Direct write-off method D. Percent of accounts receivable method.

6. When an accounts receivable aging schedule is prepared, a series of computations is made to determine the
estimated uncollectible accounts. The resulting amount from this aging schedule
A. When added to the total accounts written off during the year is the desired credit balance of the allowance for
doubtful accounts at year-end.
B. Is the amount of doubtful accounts expense for the year.
C. Is the amount that should be assed to get the doubtful accounts expense for the year.
D. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year-end.

7. When a specific customer’s accounts receivable is written off as uncollectible, what will be the effect on net income?
A. No effect under both allowance and direct write-off method.
B. Decrease under both allowance method and direct write-off method.
C. No effect under allowance method and decrease under direct write-off method
D. Decrease under allowance method and no effect under direct write-off method.

8. 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. Decrease the allowance for doubtful accounts
B. Increase net income
C. Have no effect on the allowance for doubtful accounts
D. Have no effect on net income

9. When individual customers’ accounts have credit balances of material amounts, these
amounts________________________.
a. May be shown as “credit balances of customers’ accounts” in the current assets section
b. May be deducted from the debit balance in other customers’ accounts in the assets section
c. Must be reported separately in the liability section of the balance sheet
d. Should be omitted from the balance sheet

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10. Accounts receivable usually appear in the balance sheet
a. As current assets, combined with cash and cash equivalents
b. As current assets, immediately after cash and cash equivalents
c. As either current assets or noncurrent assets, depending on whether the allowance method or the direct write-off
method is used to account for uncollectible accounts
d. Only if the balance sheet method of estimating uncollectible accounts is used

11. Trade receivables are classified as current assets if they are reasonably expected to be collected
a. Within one year
b. Within the normal operating cycle
c. Within one year or within the operating cycle, whichever is shorter
d. Within one year or within the operating cycle, whichever is longer

12. Under this agreement, the seller should pay for the freight of goods delivered
a. Freight collect c. FOB shipping point
b. Freight prepaid d. FOB destination

13. Which of the following should be recorded in accounts receivable?

a. Receivables from officers c. Dividends receivable
b. Receivables from subsidiaries d. None of these

14. Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting
theory?
a. Matching b. Verifiability c. Conservatism d. Substance over form

15. Accounts receivable are initially measured at and subsequent valued at:
a. Face Value : Face Value
b. Face Value : Net Realizable Value
c. Face Value : Maturity Value
d. Market Value : Net Realizable Value

16. In estimating the net realizable value of trade accounts receivable, the following deduction are made. Which is the
exception?
a. Allowance for freight charges c. Allowance for sales discount
b. Allowance for sales return d. Allowance for depreciation

17. Which of the following would be classified as trade receivable?

a. Cash dividends receivable
b. Claims in litigation
c. Amounts due from customers
d. Loans to employees

18. When receivables are recognized initially, an entity shall measure it at fair value plus transaction costs that are directly
attributable to the acquisition. Which is false regarding fair value measurement?
a. Fair value is usually the transaction price or original exchange price
b. For short-term receivables, fair value is equal to the face value or original invoice amount
c. For long-term receivables that are interest-bearing, fair value is equal to the present value of all future cash flow
discounted using prevailing market rate of interest for similar receivables.
d. For long-term receivables that are non-interest-bearing, fair value is equal to the present value of all future cash flow
discounted using prevailing market rate of interest for similar receivables.

19. The basic issues in accounting for notes receivable include each of the following except
a. analyzing notes receivable. c. recognizing notes receivable.
b. disposing of notes receivable. d. valuing notes receivable.

20. A 60-day note receivable dated June 13 has a maturity date of

a. August 13. c. August 11.
b. August 12. d. August 10.

21. The maturity value of a ₱90,000, 10%, 60-day note receivable dated
July 3 is:
a. ₱90,000. c. ₱105,000.
b. ₱99,000. d. ₱91,500.

22. A 90-day note dated June 14 has a maturity date of

a. September 14. c. September 13.
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b. September 12. d. September 15.

23. A promissory note

a. is not a formal credit instrument.
b. may be used to settle an accounts receivable.
c. has the party to whom the money is due as the maker.
d. cannot be factored to another party.

24. Which of the following is not true regarding a promissory note?

a. Promissory notes may not be transferred to another party by endorsement.
b. Promissory notes may be sold to another party.
c. Promissory notes give a stronger legal claim to the holder than accounts receivable.
d. Promissory notes may be bearer notes and not specifically identify the payee by name.

25. The maturity value of a ₱4,000, 9%, 60-day note receivable dated February 10th is
a. ₱4,060. c. ₱4,000.
b. ₱4,030. d. ₱4,360.

26. The interest on a ₱5,000, 10%, 1-year note receivable is

a. ₱5,000. c. ₱5,050.
b. ₱500. d. ₱5,500.

27. The maturity value of a ₱30,000, 8%, 3-month note receivable is

a. ₱30,600. c. ₱32,400.
b. ₱30,240. d. ₱30,200.

28. Risen Company receives a ₱5,000, 3-month, 8% promissory note from Dodd Company in settlement of an open
accounts receivable. What entry will Risen Company make upon receiving the note?
a. Notes Receivable 5,100
Accounts Receivable—Dodd Company 5,100

b. Notes Receivable 5,100

Accounts Receivable—Dodd Company 5,000
Interest Revenue 100
c. Notes Receivable 5,000
Interest Receivable 100
Accounts Receivable—Dodd Company 5,000
Interest Revenue 100
d. Notes Receivable 5,000
Accounts Receivable—Dodd Company 5,000

29. A company that receives an interest-bearing note receivable will

a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.

30. Short-term notes receivable is reported at

a. cash (net) realizable value. c. gross realizable value.
b. face value. d. maturity value.

31. When a note receivable is dishonored,

a. interest revenue is never recorded.
b. bad debts expense is recorded.
c. the maturity value of the note is written off.
d. Accounts Receivable is debited if eventual collection is expected.

32. Herbert Company lends Newton Company ₱30,000 on April 1, accepting a four month, 9% interest note. Herbert
Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements
can be prepared?
a. Note Receivable 30,000
Cash 30,000
b. Interest Receivable 225
Interest Revenue 225
c. Cash 225
Interest Revenue 225
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d. Interest Receivable 900
Interest Revenue 900

33. When a note is accepted to settle an open account, Notes Receivable is debited for the note's
a. net realizable value. c. face value.
b. maturity value. d. face value plus interest

34. A note receivable is a negotiable instrument which

a. eliminates the need for a bad debts allowance.
b. can be transferred to another party by endorsement.
c. takes the place of checks in a business firm.
d. can only be collected by a bank.

35. The interest on a ₱2,000, 6%, 90-day note receivable is

a. ₱120. c. ₱30.
b. ₱60 d. ₱90.

36. Notes receivable are recognized in the accounts at

a. cash (net) realizable value. c. gross realizable value.
b. face value. d. maturity value.

37. On June 1, ₱800 of goods are sold with credit terms of 1/10, n/30. How much should the seller expect to receive if the
buyer pays on June 8?
a. ₱720 b. ₱784 c. ₱792 d. ₱800

38. On June 1, ₱800 of goods are sold with credit terms of 1/10, n/30. On June 3 the customer returned ₱100 of the
goods. How much should the seller expect to receive if the buyer pays on June 8?
a. ₱692 b. ₱693 c. ₱700 d. ₱792

II. IDENTIFICATION

39. On which financial statement would you expect to find Allowance for Doubtful Accounts?
____________________________________
balance sheet
40. The buyer is responsible for the costs of shipping when goods are sold with the terms FOB
____________________________________.
Freight Collect

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