PRACTICE TEST 1.

1 d) Conservatism
1. Comprehensive income is another term for net
7. Revenues are inflows or other enhancements of
income. False
assets or settlements of liabilities from activities
that constitute the entity's ongoing operations.
2. Listed below are terms followed by a list of
True
phrases that describe or characterize the terms.
Match each phrase with the correct term by
8. Conservatism is a desired qualitative
selecting the best term provided by the phrase.
characteristic of accounting information. False
Comparability → Important in analysis between
firms.,
Listed below are terms followed by a list of phrases
Cost effectiveness → Considers the value of that describe or characterize the terms. Match
using information relative to cost of providing each phrase with the correct term by selecting the
it., best term provided by the phrase.

Consistency → Applying the same accounting 9. Completeness → Information contains all

practices over time., information necessary for faithful
representation.,
Recognition → The process of including data in
financial statements., Comprehensive income → The change in equity
from nonowner transactions.,
Neutrality → Accounting information should be
unbiased. Materiality → Concerns the decision-making
impact of both the amount and nature of an
3. Accrual accounting attempts to measure item.,
revenues and expenses that occurred during
accounting periods so they equal net operating Faithful representation → Along with relevance, a
cash flow. False fundamental decision-specific quality.,
Gain → Results if an asset is sold for more than
4. The conceptual framework's qualitative
book value.
characteristic of relevance includes:
a) Neutrality. 10. Going concern assumption → Assumes an
b) Completeness. entity will continue to operate indefinitely.,
c) Predictive value.
Monetary unit assumption → Ignores the
d) Verifiability.
possibility of inflation.,
5. Accounting standard setting has been Verifiability → Implies consensus among
characterized as: different observers.,
a) Pure deductive reasoning.
b) Pure inductive reasoning. Periodicity assumption → Requires reporting the
c) A political process. financial life of an entity in discrete time
d) Using the scientific method. frames.,
Economic entity assumption → Assumes all
6. In a recent annual report, Apple Computer transactions can be identified with a particular
reported the following in one of its disclosure entity.
notes: "Warranty Expense: The Company
provides currently for the estimated cost for 11. Matching principle → Guide to expense
product warranties at the time the related recognition.,
revenue is recognized." This note exemplifies
Full-disclosure principle → Reporting of all
Apple's use of:
information that could affect decisions.,
a) Realization principle
b) The matching principle Realization principle → Recognition of revenue
c) Economic entity only after certain criteria are satisfied.,
Historical cost principle → Basis of measurement 6. The quality of information that allows users to
for fixed assets., perceive its significance. → Relevance
Materiality → Application of GAAP sometimes
7. Its primary role is to regulate the issuance and
avoided under this constraint.
trading of securities by corporations to the
12. The full disclosure principle requires a balance general public. → Securities and Exchange
between: Commission (SEC)
a) Reliability and neutrality.
b) Timeliness and predictive value. 8. The primary users of information provided by
c) Relevance and cost effectiveness. financial accounting → External users
d) Comparability and consistency.
9. This characteristic requires that information that
13. A cause-and-effect relationship is implicit in the: may affect the decision or evaluation of the
a) Historical cost principle. users should be disclosed. → Completeness
b) Realization principle.
c) Going concern assumption. 10. For the information to meet this qualitative
d) Matching principle. characteristic, it must be complete, neutral and
free from error. → Faithful representation
14. The primary function of financial accounting is
to provide relevant financial information to 11. The enterprise is separate from its owners and
parties external to business enterprises. True other entities. → Entity concept

PRACTICE 1.2 CONCEPTUAL FRAMEWORK 12. Assumes that the accounting entity will have a
Pair each description with the terms. long life. → Going concern

1. This concept separates financial information

into time periods for reporting purposes. → 13. Financial information possesses this attribute if
Accounting period it can be used as an input to processes
employed by users to forecast future outcomes.
2. Sound and generally accepted principles should → Predictive value
be applied if the amount involved is significant
when compared with the other elements of
financial statements. → Materiality
14. The set of pronouncements that constitute the
generally accepted accounting principles
promulgated by the International Standards
3. This enhancing qualitative characteristic is
Board. → International Financial Reporting
achieved when entities use the same
Standards
accounting methods from period to period. →
Comparability
15. Increase (decrease) in net assets during the
4. Necessary to build an established body of
year after deducting contributions from owners
concepts and objectives for solving new and
and adding back distributions to owners. →
emerging practical problems in financial
Income
reporting. → Conceptual framework
PRACTICE TEST 1.3: REVIEW OF
CONCEPTUAL FRAMEWORK
5. At present, the accredited professional
organization of practicing certified public Determine whether the statement is correct or
accountants in the Philippines → Philippine incorrect.
Institute of Certified Public Accountants 1. Government and its agencies have an interest
(PICPA) in information about the continuance of an
enterprise especially when they have long-term
 involvement or are dependent on the enterprise. 13. The framework applies to financial statements
False of business reporting enterprises both in the
2. Employees and their representative groups are private sector and in the public sector. True
interested in information about the stability and
profitability of the entity. True 14. In case where there is conflict between the
framework and PFRS, the requirement of the
3. The Conceptual Framework sets out the framework will prevail. False
concepts that underlie the preparation but not
the presentation of financial statements. False 15. Applying the enhancing qualitative
characteristics is an iterative process that does
4. The Conceptual Framework for Financial not follow a prescribed order. True
Reporting is considered a PFRS. False
16. In assessing whether an item meets the
5. The definitions of an asset and a liability identify definition of an asset, liability or equity, attention
their essential features but do not attempt to needs to be given to its underlying substance
specify the criteria that need to be met before and economic reality and not merely its legal
they are recognized in the balance sheet. True form. True

6. Changing the method of inventory valuation 17. In the Conceptual Framework, qualitative
should be reported in the financial statements characteristics are considered fundamental or
under verifiability. False enhancing. True

7. The implicit assumption in the Conceptual 18. The ingredients of faithful representation are
Framework is that information must be decision- completeness and neutrality. False
useful to all potential users of the financial
reporting. False 19. The objective of financial reporting in the
Conceptual Framework for financial reporting is
8. The underlying theme of the conceptual found in the third level of the framework. False
framework is comparability. False
20. The providers of risk capital and their advisers
9. Sometimes, one enhancing qualitative are concerned with the risk inherent in and
characteristic may have to be diminished to return provided by their investment. True
maximize another qualitative characteristic.
PRACTICE 1.5
True
1. Choose the incorrect statement:
10. The International Accounting Standards Board a) The assessment of earnings quality has
(IASB) Conceptual Framework includes the become an exact science.
concept of prudence or conservatism as a b) Security analysts use information from financial
desirable, but not required, quality of financial statements and other sources to project future
reporting information. False earnings.
c) The practice of accounting requires
11. Lenders are interested in information that considerable professional judgment.
enables them to determine whether their loans d) The objective of external financial statements is
and the interest in these loans will be paid when to communicate the economic benefits of
due. True completed transactions and other events on the
entity.
12. The objective of financial reporting to business
enterprises are based on the need for 2. Which of the following areas within the accounting
conservative information. False field has its main purpose serving the information
needs of parties outside the reporting firm?
a) Auditing
b) Financial Accounting
 c) Managerial Accounting b) The primary function of the Financial Reporting
d) Tax Accounting Standards Council is to develop and enforce
auditing standards.
3. Which of the following is not a qualitative c) The Securities and Exchange Commission
characteristic of financial statements according to (SEC) exerts influence on the development of
the Framework? accounting records.
a) Understandability d) Benefits provided by accounting procedures
b) Comparability should exceed their cost.
c) Materiality
d) Relevance 10. Gains are:
a) None of the above.
4. Which of the following are underlying assumptions b) Increases in equity from peripheral transactions
of financial statements? of an entity.
a) Prudence and conservatism c) Inflows from selling a product or service to a
b) Financial capital maintenance and physical customer.
capital maintenance d) Increases in equity resulting from transfers of
c) Relevance and Reliability assets to the company from owners.
d) Accrual basis and going concern
11. Which of the following statements about
5. Of the following, the most important objective for International Accounting Standards is true?
financial reporting is to provide information useful a) The IASC is able to enforce its standards by
for: prohibiting the listing of companies which do not
a) Determining taxable income. comply on stock exchanges which sell
b) Making decisions. internationally.
c) Increasing future profits. b) Legal and psychological hurdles to achieving
d) Providing accountability. common reporting standards have largely been
overcome.
6. Fundamental qualitative characteristics of c) The International Accounting Standards Board
accounting information are: (IASB) was established with the purpose of
a) Neutrality and consistency. narrowing the range of divergence in
b) Faithful representation and relevance. accounting standards used throughout the
c) Relevance and comparability. world.
d) Comparability and consistency. d) International standards are enforceable world-
wide, in order to allow for judgments regarding
7. The conceptual framework's qualitative international investments.
characteristic of relevance includes:
a) Neutrality. 12. Critical thinking is most important in which of the
b) Completeness. following problem-solving steps?
c) Predictive value. a) identifying alternative solutions
d) Verifiability. b) evaluating the alternatives
c) selecting a solution from among the alternatives
8. According to the conceptual framework, verifiability d) recognizing a problem
implies: 13. Surefeet Corporation changed its inventory
a) Logic. valuation method. Which characteristic is
b) Consensus. jeopardized by this change?
c) Legal evidence. a) Representational faithfulness.
d) Legal verdict. b) Feedback value.
c) Comparability.
9. Choose the incorrect statement: d) Consistency.
a) The double-entry system of accounting has
been used for centuries.
14. The enhancing qualitative characteristic of a) verifiable
understandability means that information should be b) reliable
understood by: c) relevant
a) Those who are experts in the interpretation of d) qualitative
financial information.
b) CPAs.
c) Those who have a reasonable understanding of
business and economic activities. PRACTICE TEST 1.6 ELEMENTS OF FS,
d) Financial analysts. CONCEPTUAL FRAMEWORK

15. Comparability is sometimes sacrificed for: 1. Which statement is incorrect regarding

a) objectivity information about a reporting entity’s financial
b) conservatism performance?
c) reliability a) That information helps users to understand the
d) relevance return that the entity has produced on its
economic resources.
16. When there is agreement between a measure or b) Information about the return the entity has
description and the phenomenon it purports to produced provides an indication of how well
represent, information possesses which management has discharged its responsibilities
characteristic? to make efficient and effective use of the
a) Timeliness. reporting entity’s resources.
b) Verifiability. c) Information about the variability and
c) Faithful representation. components of that return is also important,
d) Predictive value. especially in assessing the uncertainty of future
cash flows.
17. Enhancing qualitative characteristics of accounting d) Information about a reporting entity’s past
information include each of the following except: financial performance and how its
a) Verifiability. management discharged its responsibilities
b) Timeliness. is indicative of the entity’s future returns on
c) Materiality. its economic resources.
d) Comparability.
2. Which of the following is (are) essential to the
18. A primary objective of financial reporting is to: existence of an asset?
a) assist investors in analyzing the economy a) Legal right.
b) assist banks to determine an appropriate b) Physical form.
interest rate for their commercial loans c) Both a and b.
c) assist suppliers in determining an appropriate d) Neither a nor b.
discount to offer a particular company
d) assist investors in predicting prospective cash 3. Revenue from sale of goods shall be
flows recognized when all of the conditions have
been satisfied, except:
19. The conceptual framework's recognition and a) The entity has transferred to the buyer the
measurement concepts recognize which of the significant risks and rewards of ownership of the
following as an assumption, rather than a principle? goods.
a) Realization. b) The entity retains either continuing
b) Historical cost. managerial involvement or effective control
c) Full disclosure. over the goods sold.
d) Going concern. c) The amount of revenue can be measured
reliably.
20. If accounting information is timely and has d) It is probable that economic benefits will flow to
predictive and feedback value, then it can be the entity.
characterized as:
4. An obligation that is contingent on the from the sale of merchandise to Y Ltd. be
occurrence of a future event should be reported recognized by X Ltd.?
in the balance sheet as a liability if: a) When goods are delivered to Y Ltd.
a) The future event is likely to occur. b) When the goods are sold by Y Ltd.
b) The amount of the obligation can be reasonably c) It will depend on the terms of delivery of the
estimated. merchandise by X Ltd., to Y Ltd. (i.e. CIF[cost,
c) The occurrence of the future event is at least insurance, and freight] or FOB)
reasonably possible and the amount is known. d) It will depend on the terms of payment between
d) The occurrence of the future event is Y Ltd and X Ltd (i.e., cash or credit).
probable and the amount can be reasonably 9. The Statement of Financial Position shall
estimated. classify one of these as a non-current asset:
a) Cash funds set aside for payment of
5. The real accounting issue in revenue equipment to be delivered a month after the
recognition is the: reporting period.
a) The amount of income recognized. b) Goods which are in the process of production
b) Type of income recognized. for sale in the ordinary course of business.
c) Timing of the recognition. c) Debt and equity securities acquired principally
d) Basis of income recognition. for the purpose of generating profit from short-
term fluctuations in price or dealer’s margin.
6. Which of the following is a current liability? d) Amounts due from customers within a period of
a) Preferred dividends in arrears. 12 to 18 months, extend within the usual credit
b) A dividend payable in the form of additional term of the enterprise.
shares of company’s own stock.
c) A cash dividend payable to preferred 10. ABC Inc. is a large manufacturer of machines.
stockholders. XYZ Ltd., a major customer of ABC, Inc. has
d) All of these are current liabilities. placed an order for a special machine for which
it has given a deposit of P112,500 to ABC, Inc.
7. The accountant of John Company is preparing The parties have agreed on a price for the
the Statement of Comprehensive Income and machine of P150,000. As per the terms of the
Statement of Financial Position at December sales agreement, it is an FOB (free on board)
31, 2014. The January 1, 2014, merchandise contract and the title passes to the buyer when
inventory balance will appear: goods are loaded onto the ship at the port.
a) Only in the costs of goods section of the When should the revenue be recognized by
statement of comprehensive income. ABC, Inc.?
b) Only as an asset on the statement of financial a) When the customer orders the machine.
position. b) When the deposit is received.
c) As a deduction in the cost of goods sold section c) When the machine is loaded on the port.
of the statement of comprehensive income and d) When the machine has been received by the
as a current asset on the statement of financial customer.
position.
d) As an addition in the cost of goods sold section 11. Retained earnings are a component of:
of the statement of comprehensive income and a) Reserves
as a current asset on the statement of financial b) Other equity
position. c) Contributed equity
d) Comprehensive income
8. X, Ltd., a large manufacturer of cosmetics, sells
merchandise to Y Ltd., a retailer, which in turn 12. Which statement is incorrect regarding
sells the goods to the public at large through its information about the nature and amounts of a
chain of retail outlets. Y Ltd. Purchases reporting entity’s economic resources and
merchandise from X revenue Ltd., under a claims?
consignment contract. When should revenue
a. That information can help users to identify the 16. When the outcome of the transaction involving
reporting entity’s financial strengths and the rendering of services cannot be estimated
weaknesses. reliably, the revenue is recognized:
b. That information can help users to assess the a) In reference to the stage of completion of the
reporting entity’s liquidity and solvency, its transaction.
needs for additional financing and how b) Only to the extent of costs incurred that are
successful it is likely to be in obtaining that expected to be recoverable.
financing. c) Upon cash collection.
c. Information about priorities and payment d) Upon completion of the services to be rendered.
requirements of existing claims helps users to 17. To meet the probability criterion, in relation to
predict how future cash flows will be distributed recognition of assets and liabilities, the
among those with a claim against the reporting expectation that future economic benefits will
entity. flow to or from an entity must be:
d. Information about economic resources and a) Certain.
claims are reported in the Statement of b) Virtually certain.
Comprehensive Income. c) Sufficiently certain.
d) Not uncertain.
13. Limitations of the Income Statement include all
of the following, except: 18. What might a manager do during the last
a) Only actual amounts are reported in quarter of fiscal year if she wanted to improve
determining net income. current annual net income?
b) Items that cannot be measured reliably are not a) Relax credit policies for customer.
reported. b) Increase research and development activities.
c) Income measurement involves judgment. c) Delay shipments to customers until after the
d) Income numbers are affected by the accounting end of the fiscal year.
methods employed. d) Delay purchases from suppliers until after the
end of the fiscal year.
14. A liability shall be classified as a current liability
when it satisfies any of the following criteria, 19. The term “layaway sales” applies to
except: transactions where goods are delivered only
a) It is expected to be settled in the entity’s normal when the buyer makes the final payments in a
operating cycle. series of installments. Revenue from such sales
b) It is primarily held for the purpose of being is generally recognized when:
traded. a) The goods are delivered.
c) It is due to be settled within fifteen months b) The first installment is made.
after the balance sheet date. c) The final installment is made.
d) The entity does not have an unconditional right d) The substantial payment is made.
to defer settlement of the liability for at least
twelve months after the balance sheet date. 20. So long as it is probable that the economic
benefits will flow to the enterprise and the
15. The conceptual framework includes a cost- amount of revenue can be measured reliably,
benefit constraint. Which of the following best revenue from royalties should be recognized
describes the cost-benefit constraint? on:
a) The benefits of the information must be a) An accrual basis.
greater than the costs of providing it. b) The cash basis of accounting.
b) Financial information should be free from cost c) The net present value of cash flows method.
to users of the information. d) A percentage of completion basis.
c) Costs of providing financial information are not
PRACTICE TEST 2.1 CASH & CASH
always evident or measurable, but must be
EQUIVALENTS
considered.
d) All of the choices are correct. 1. What is the proper accounting treatment for a
stale check?
 a) Revert back to cash and a credit to gain. Cash in bank – savings – BPI 600,000
b) Revert back to cash and accounts
Cash in bank – current – BPI (240,000)
payable.
c) Ignored Cash in bank – deposit in escrow – Metrobank
300,000
2. In relation to cash equivalents, determine
whether the following statements are true or Cash in bank – current – Metrobank
false" ( 60,000)

S1: Redeemable preference shares can never be Cash in bank – current – BDO
part of cash equivalents since they are equity ( 90,000)
instruments. Total 810,000
S2: If a debt instrument cannot be included as cash Additional information:
equivalent because it is acquired 4 months before
its maturity date, it is still part of the current assets • Cash on hand includes undeposited collections of
of the company. P60,000

S3: Cash equivalents should be measured at • The cash in bank – savings maintained at BPI
maturity date, meaning face value plus interest. includes a P150,000 compensating balance which
False, true, false, is not restricted.

True, true, false What amount of cash is reported in the financial

statements? 660,000
6. The amount reported as "Cash" on a company's
3. Which of the following is not a basic statement of financial position normally should
characteristic of a system of cash control? exclude
a) Use of a voucher system a) petty cash.
b) Combined responsibility for handling b) postdated checks that are payable to the
and recording cash company.
c) Internal audits at irregular intervals c) undelivered checks written and signed by
d) Daily deposit of all cash received the company.
d) cash in a payroll account.
4. Trans Co. had the following balances at
December 31, 2009: 7. In relation to cash and cash equivalent, which of
Cash in checking account P 35,000 the following statements are true or false?

Cash in money market account 75,000 I. Checks are always presented as part of cash.

Treasury bill, purchased 11/1/2009, maturing II. Checks drawn which are post-dated should be
1/31/2010 350,000 reverted back to cash even if the checks are
already delivered to the payees.
Treasury bill, purchased 12/1/2009, maturing
3/31/2010 400,000 III. An entity acquires an investment in debt
securities on November 30, 20x1. The debt
Tran’s policy is to treat as cash equivalents all securities mature on January 31, 20x2. The debt
highly liquid investments with a maturity of three securities qualify to be presented as part of cash
months or less when purchased. What amount equivalents on the entity's 20x1 financial
should Trans report as cash and cash equivalents statements.
in its December 31, 2009, balance sheet (statement
of financial position)? P460,000 IV. A compensating balance that is legally restricted
as to withdrawal cannot be included as part of cash
5. The cash balance of CAPSIZE OVERTURN Co. and cash equivalents but can be presented as
comprises the following: current asset.
Cash on hand 300,000 False, True, True, True
8. S1: The basic requirement for cash and cash c) whenever the accountant feels like it.
equivalent is for it to be restricted for use. d) on a daily basis.
S2: Money which is not legal tender can be part
of cash. 5. Which of the following is added to the cash
balance per books when preparing a bank
False, true
reconciliation statement?
9. Which of the following would not be classified a) Credit memos (CM)
as cash? b) Deposits in transit (DIT)
a) Postdated checks c) Outstanding checks (OC)
b) Cashiers' checks d) Debit memos (DM)
c) Personal checks
d) Travelers' checks 6. Which of the following is added to the cash
balance per bank statement when preparing a
10. The principal purpose of a voucher system is to bank reconciliation statement?
provide assurance that a) Outstanding checks (OC)
a) all purchase invoices are supported by debit b) Credit memos (CM)
memoranda. c) Debit memos (DM)
b) all cash receipts are deposited intact in the d) Deposits in transit (DIT)
bank.
c) all cash receipts are recorded in the account 7. These are deposits made but not yet credited
ng records. by the bank to the depositor’s bank account.
d) all cash disbursements are approved a) Credit memos (CM)
before a check is issued. b) Debit memos (DM)
c) Deposits in transit (DIT)
PRACTICE 2.2 BANK RECON d) Outstanding checks (OC)
1. It is a report that is prepared for the purpose of
bringing the balances of cash per records and 8. Which of the following represents a debit
per bank statement into agreement. memo?
a) Bank statement a) Interest income earned by the deposit.
b) Bank deposit slip b) Loan proceeds directly credited or added by
c) Bank reconciliation the bank to the depositor’s account.
d) Check Disbursement Voucher c) Interest expense on a loan that is directly
deducted from the depositor’s account.
2. These are deductions made by the bank to the d) Collections made by the bank on behalf of
depositor’s bank account but not yet recorded the depositor.
by the depositor.
a) Deposits in transit (DIT) 9. Which of the following is not a debit memo?
b) Debit memos (DM) a) Automatic debits representing payments of
c) Credit memos (CM) bills by the bank on behalf of the depositor
d) Outstanding checks (OC) b) Direct deposits of customers to the
depositor’s account
3. These are checks drawn and released to c) No sufficient funds checks (NSF)
payees but are not yet encashed with the bank. d) Bank service charges
a) Outstanding checks (OC)
b) Debit memos (DM) 10. These are additions made by the bank to the
c) Deposits in transit (DIT) depositor’s bank account but not yet recorded
d) Credit memos (CM) by the depositor.
a) Debit memos (DM)
4. As an internal control, bank reconciliation b) Deposits in transit (DIT)
statements are usually prepared c) Credit memos (CM)
a) annually every year-end. d) Outstanding checks (OC)
b) on a monthly basis.
 PRACTICE TEST 2.3 CASH & CASH What amount will Logistics include in its year-end
EQUIVALENTS balance sheet as cash and cash equivalents?
412,000
1. Cash that is restricted and not available for
current operations is reported in the balance 442,000 - 50,000 + 20,000 = 412,000
sheet as:
7. From a financial accounting perspective, the
a) A separate section between liabilities and
main purposes of a system of internal control
equity.
are to improve the accuracy and reliability of
b) Liabilities.
accounting information and to safeguard assets.
c) Equity.
True
d) Investments.
8. Cashmere Soap Corporation had the following
2. Compensating balances represent:
items listed in its trial balance at 12/31/22:
a) Balances in a payroll checking account.
b) Accounts on which banks pay interest, e.g., Currency and coins
NOW accounts. 650
c) Funds in a bank account that can't be
spent. Balance in checking account
d) Accounts that are subject to bank service 2,600
charges. Customer checks waiting to be deposited
1,200
3. Cash equivalents do not include:
a) High grade marketable equity securities. Treasury bills purchased on 11/1/22, mature on
b) Commercial paper. 4/30/23 3,000
c) Money market funds.
Marketable equity securities
d) U.S. treasury bills.
10,200
4. Cash may not include: Commercial paper purchased on 11/1/22, mature
a) Money orders. on 1/30/23 5,000
b) Restricted cash.
c) Undeposited customer checks. What amount will Cashmere Soap include in its
d) Foreign currency. year-end balance sheet as cash and cash
equivalents? 9,450.
5. Cash equivalents would include investments in 650 + 2,600 + 1,200 + 5,000 = 9,450
marketable equity securities as long as
management intends to sell the securities in the 9. Accounts receivable are normally reported at
next three months. False the:
a) Current value less expected collection costs.
6. Logistics Company had the following items b) Expected amount to be received.
listed in its trial balance at 12/31/22: c) Present value of future cash receipts.
d) Current value plus accrued interest.
Balance in checking account, Bank of the East
442,000 10. Depending on the circumstances, the
Treasury bills, purchased on 11/1/22, mature on classification of a compensating balance may
1/30/23 be either current or noncurrent, and the
20,000 arrangement should be disclosed in the notes.
True
Loan payable, long term, Bank of the East
300,000 PRACTICE TEST 2.4 COMPREHENSIVE 1

Included in the checking account balance is 50,000 1. Which of the following procedures is not
of restricted cash that Bank of the East requires as consistent with good control of cash receipts?
a compensating balance for the 300,000 note. a) Separate responsibilities for cash-handling
and cash-recording functions
 b) Assignment of cash custody and  Ending balance March 31
reconciliation to the same individual. P 28,046
c) Assignment of responsibilities to ensure a  Bank service charge for March
continuous and uninterrupted flow of cash 130
from initial receipt to deposit in an  Interest paid by bank to Sternum for March
authorized bank account. 107
d) Continuous and close supervision of all
cash-handling and cash-recording functions. In company the bank statement to its own cash
records, Sternum found the following:
2. A company had a petty cash account with a
 Deposits made but not yet recorded by the bank
stated balance of P300 on January 1, 2016.
P 3,689
Petty cash expenses for 2016 were as follows:
 Checks written and mailed but not yet recorded
postage, P45; supplies used. P145; parking
 By the bank
fees, P30. At the end of 2016, the auditor
6,530
counted the money in the petty cash fund and
found P50 cash on hand. The December 3 I, In addition, Sternum discovered that it had
2016, entry regarding the petty cash fund erroneously recorded a check for P46 that should
should be: have been rerecorded for P64. What is Sternum's
correct Cash balance at March 31? 25,205
Postage expense 45
Supplies expense 145
7. Which is not a key element of internal control
Parking expense 30 over cash receipts?
a) daily recording of all cash receipts in the
Cash short 30 accounting records
Cash 250 b) daily entry in a voucher register
c) immediate counting by the person opening
3. Which of the following reconciling items would the mail or using the cash register
require an adjusting journal entry on the d) daily deposit intact
company's books?
a) outstanding checks 8. All of the following are necessary components
b) deposits in transit of internal control over cash except:
c) non-sufficient funds checks a) a petty cash system.
d) cash on hand b) a bank reconciliation.
c) the daily deposit of all receipts in the
4. In order to be classified as a cash equivalent, company's bank account.
an investment must have a maturity date of: d) a cash reserve.
a) less than six months.
b) three months or less. 9. Which of the following is a key element of
c) three to six months. internal control over cash payments?
d) six to twelve months. a) making daily bank deposits
b) periodically reconciling the · cash
5. Cash control systems are the methods and account balance on the company's
procedures used to: books to the bank statement balance
a) ensure the safeguarding of cash. c) authorizing and verifying that all cash
b) ensure that excess cash does not exist. received is recorded daily
c) ensure that unused cash is invested. d) requiring that all petty cash vouchers be
d) ensure that current obligations are met. approved by two signatures

6. Sternum Company's bank statement for the 10. Luntian Company has the following cash
month of March included the following balance at December 31, 2016:
information:  Cash in banks
1,500,000
 Petty cash funds (all fonds were reimbursed on e) All disbursements (except petty cash) are
December 31, 2016) required to be made by check.
20,000
 Cash legally restricted for additions to plant 15. Wichita Company had the following cash
(expected to be disbursed in 2018) balances at December 31, 2016:
2,000,000  Undeposited coin and currency
P 35,000
Cash in banks includes P500,000 of compensating
 Unrestricted demand deposits
balances against short-term borrowing
1,450,000
arrangement at December 31, 2016. The
 Company checks written (and deducted from
compensating balances are not legally restricted as
the demand deposits amounts but not
to withdrawal by Luntian. In the current assets
scheduled to be mailed until January 2
section of Luntian's December 31,2016 statement
270,000
of financial position, what total amount should be
 Time deposits restricted for use (expected use
reported as cash? 1,520,000
in 2017) 3,000,000
In exchange for a guaranteed line of credit. Wichita
11. A company received its monthly bank
has agreed to maintain a minimum balance of
statement, which showed an ending balance of
P150,000 in its unrestricted demand deposits
P150,000. Adjustments on the bank
account. How much total cash should Wichita
reconciliation included a deposit in transit,
report in its December 31, 2016 statement of
P20,000; outstanding checks, P30,000; "NSF"
financial position current asset section? 4,755,000
check for P5,000; bank service charge of P300;
proceeds of a customer's note collected by the 16. The entry to replenish the petty cash fund for
bank of P40,000. What was the correct cash P1,000 of various minor expenditures would
balance shown on the Statement of Financial include a:
Position? 140,000 a) debit to petty cash.
12. Midwest, Inc., reported a balance of P14,300 in b) credit to petty cash.
its cash account at the end of the month. There c) debit to cash.
were P12,000 of deposits in transit and P11,500 d) credit to cash.
of checks outstanding. The bank statement
showed a balance of P 15,000. Service charges 17. In reconciling the bank balance with the book
of P600, and the collection of a note plus cash balance. which of the following would not
interest. The note had a face value of P 1,500. cause the bank balance shown on the bank
How much interest did the bank collect for the statement to be lower than the unadjusted book
company? 300 balance?
a) Deposits in transit
13. Which of the following is classified as a current b) NSF checks from a customer as reported on
liability on the Statement of Financial Position'? the bank statement
a) bank overdrafts c) Interest credited to the account by the
b) travel advances bank
c) postdated checks d) Cash on hand at the company
d) customer nonsufficient fund cheeks
18. E Company's cash account had a balance of
14. Which of the following procedures is the least P96,200 on August 31. This included a bank
essential attribute of a cash disbursement deposit of P8,700 that was in transit on the
control system? 31st. The August 31 bank statement contained
a) Supervision of all cash disbursement and the following information:
record keeping functions.  Bank statement balance P
b) Checks are signed only when supported by 108,900
adequate documentation and verification.  Bank service charge
c) Use of multiple bank accounts. 1,700
d) Establishment of a petty cash system.
 NSF check 1. Which of the following statements concerning
1,600 compensating balance agreements is not true?
 Collection of notes receivable a) they increase the effective interest rate to
8,600 the borrower
b) they reduce the amount of cash available to
E Company also had checks outstanding of the borrower
P16,100. What is E's reconciled balance? 101,500 c) they must be disclosed in the financial
19. When a company's bookkeeper started to statements footnotes
prepare the monthly bank reconciliation, the d) they always involve legal restrictions on the
cash account showed a balance of P528,600. cash received
At the end of the month, the following
information was available from the company 2. Vital Heating Co. uses a four-column bank
records and the monthly bank statement: reconciliation. The bank reconciliation for May
shows P3,000 of deposits in transit. The bank
(I) Customer NSF checks listed on the bank statement for June reveals that the bank
statement P 40,800 recorded receipts totaling P20,400 (P4,200 of
which was a note collected from a Vital Heating
(2) Bank service charges listed on the bank
customer). During June, Vital recorded P18,000
statement 2,400
in deposits. The amount of deposits outstanding
(3) Checks outstanding at the encl of the month. for June's reconciliation must be:
determined by the bookkeeper a) 1,800
178,000 b) 2,400
c) 600
(4) A deposit for P45,000 was recorded incorrectly d) 4,800
on the bank statement as
54,000 3. In order to be classified as a cash equivalent,
(5) The company wrote a check for P1,700 (the an investment must have a maturity date of:
correct amount) but recorded it in the cash account a) less than six months.
as 7,100 b) six to twelve months.
c) three to six months.
(6) Customer defaults o" accounts receivable were d) three months or less.
determined by the bookkeeper to be
12,600 4. When a company's bookkeeper started to
The correct cash balance shown on the bank prepare the monthly bank reconciliation, the
reconciliation should be: 572,400 cash account showed a balance of P528,600.
At the end of the month, the following
20. Crunchy Co. established a P3,000 petty cash information was available from the company
fund. You found the following items in the fund: records and the monthly bank statement:
 Cash and currency .............................P
(1) Customer NSF checks listed on the bank
1,683.80
statement - 40,800
 Expense vouchers........................... .
829.80 (2) Bank service charges listed on the bank
 Advance to salesman............................. statement - 2,400
200.00
(3) Checks outstanding at the end of the month,
 IOU from employee .............................
determined by the bookkeeper - 178,000
300.00
(4) A deposit for P45,000 was recorded incorrectly
In the entry to replenish the fund, what amount
on the bank statement as - 54,000
should be debited to Cash Short and Over? 0
(5) The company wrote a check for P1,700 (the
PRACTICE TEST 2.5 CASH & CASH
correct amount) but recorded it in the cash account
EQUIVALENTS, PCF & BANK RECON
as - 7,100
(6) Customer defaults on accounts receivable were c) 13,9880
determined by the bookkeeper to be - 12,600 d) 12,780
The correct cash balance shown on the bank
8. Which of the following is a key element of
reconciliation should be:
internal control over cash payments?
a) 561,600 a) periodically reconciling the cash account
b) 572,400 balance on the company's books to the
c) 581,400 bank statement balance
d) 490,800 b) requiring that all petty cash vouchers be
approved by two signatures
5. All of the following are necessary components c) making daily bank deposits
of internal control over cash except: d) authorizing and verifying that all cash
a) a bank reconciliation received is recorded daily
b) a petty cash system
c) a cash reserve 9. The entry to replenish the petty cash fund for
d) the daily deposit of all receipts in the P1,000 of various minor expenditures would
company's bank account include a:
a) credit to cash
6. Cash control systems are the methods and b) credit to petty cash
procedures used to: c) debit to cash
a) ensure that unused cash is invested. d) debit to petty cash
b) ensure the safeguarding of cash.
c) ensure that current obligations are met. 10. Midwest Inc. reported a balance of P14,300 in
d) ensure that excess cash does not exist. its cash account at the end of the month. There
were P12,000 of deposits in transit and P11,500
7. Carroty Street Market's accountant is preparing of checks outstanding. The bank statement
its October bank reconciliation and has showed a balance of P15,000. Service charges
collected the following data: ?????? of P600, and the collection of a note plus
Per Books Per interest. The note had a face value of P1,500.
Bank How much interest did the bank collect for the
company?
Oct. 1, balance P 11,600 P a) 1,200
10,000 b) 1,800
Oct. deposits 24,600 c) 300
21,200 d) 2,400

Oct.checks 27,800 11. In reconciling the bank balance with the book
29,000 cash balance, which of the following would not
cause the bank balance shown on the bank
Note collected (includes 10% interest)--
statement to be lower than the unadjusted book
4,400
balance?
Oct. service charge -- 20 a) Interest credited to the account by the bank
b) NSF checks from a customer, as reported
Oct.31balance 8,400 6,580 on the bank statement
Additionally, deposits in transit and outstanding c) Cash on hand at the company
checks from September's reconciliation were d) Deposits in transit
P4,400 and P2,800, respectively.
12. A company had a petty cash account with a
The correct balance for cash at October 31 should stated balance of P300 on January 1, 2014.
be: Petty cash expenses for 2014 were as follows:
postage, P45; supplies used, P145; parking
a) 11,180
fees, P30. At the end of 2014, the auditor
b) 10,960
 counted the money in the petty cash fund and account. The amount of outstanding checks on
found P50 cash on hand. The December 31, the April bank reconciliation must be:
2014, entry regarding the petty cash fund a) 1,200
should be: b) 300
a. Postage expense 45 c) 890
Supplies expense 145 d) 600
Parking expense 30
Cash short 30 16. Which of the following is classified as a current
liability on the Statement of Financial Position?
Cash 30
a) postdated checks
Petty cash 220 b) customer nonsufficient fund checks
c) bank overdrafts
b. Postage expense 45 d) travel advances
Supplies expense 145
Parking expense 30 17. Which of the following procedures is not
Cash 220 consistent with good internal control of cash
receipts?
c. Postage expense 45 a) Separate responsibilities for cash-handling
Supplies expense 145 and cash-recording functions.
Parking expense 3 b) Assignment of responsibilities to ensure a
Cash short 30 continuous and uninterrupted flow of cash
from initial receipt to deposit in an
Cash 250
authorized bank account.
d. Postage expense 45 c) Continuous and close supervision of all
Supplies expense 145 cash-handling and cash-recording functions.
Parking expense 30 d) Assignment of cash custody and
Cash short 30 reconciliation to the same individual.

Petty cash 250 18. Del Co. prepares a four-column bank

13. Compensating balance agreements that do not reconciliation. Check No. 859 was written for
legally restrict the amount of funds shown on P5,670 on hte books, but the check was written
the Statement of Financial Position should: and cleared the bank for the correct amount,
a) be reported in the other asset section. P6,570. The correct treatment on the
b) be reported in the current asset section. reconciliation would be:
c) be reported in the footnotes a) on the bank side, add P900 to receipts and
d) be reported in the L-T investment section add P900 to ending balance
b) on the book side, deduct P900 from
14. Which of the following reconciling items would payments and add P900 to ending balance
require an adjusting journal entry on the c) on the book side, add P900 to payments
company's books? and deduct P900 from ending balance
a) deposits in transit d) on the bank side, deduct P900 from
b) non-sufficient funds checks payments and add P900 to ending balance
c) outstanding checks
d) cash on hand 19. Crunchy Co. established a P3,000 petty cash
fund. You found the following items in the fund:
15. Senorita, Inc. uses a four-column bank  Cash and currency - 1,683.80
reconciliation. The bank reconciliation for March  Expense vouchers - 829.80
shows outstanding checks for P300. During  Advance to salesman - 200.00
April, the company wrote checks totaling  IOU from employee - 300.00
P23,600. The bank statement for April shows
In the entry to replenish the fund, what amount
P23,010 of checks clearing the company's
should be debited to Cash Short or Over?
 a) 0 subscriptions receivable
b) 500
9. Assigned accounts receivable
c) 13.60
d) 300 accounts receivable, amount of loan presented
separately as part of liabilities
20. Which is not a key element of internal control
over cash receipts? 10. Dishonored customer’s note
a) daily entry in a voucher register accounts receivable
b) daily recording of all cash receipts in the
accounting records 11. Claims from customers for merchandise sold
c) daily deposit intact
accounts receivable
d) immediate counting by the person opening
the mail or using the cash register 12. Customers’ accounts with credit balances
resulting from sales returns subsequent to full
PRACTICE TEST 3.1 RECEIVABLES
collection of account
Identification. Indicate how the following item
customer's account with credit balances
should be presented on the company’s statement
(current liabilities)
of financial position.
13. Customers’ accounts ascertained to be
1. Claims against consignees for goods shipped to
uncontrollable
the latter and already sold at December 31
not recognized anymore (for write off)
accounts receivable
14. Receivable arising from the sale of equipment
2. Claims from employees representing selling
price of goods sold under normal credit terms other non-trade receivables
accounts receivable 15. Creditors’ accounts with debit balances
resulting from overpayment
3. Expense receipts for advances made for freight
charge for the account of a supplier supplier's accounts with debit balances or
advance
advances to suppliers
16. Income tax refunds, approved by the BIR
4. Customers’ accounts on which postdated
checks are held Claims for income tax refund (current assets)
accounts receivable PRACTICE TEST 3.2 A/R
5. Claims against consignees for goods shipped to The statement of financial position of Toyota
the latter, goods are still unsold at the reporting Products, Inc. shows the accounts receivable
date balance at December 31, 2015 as follows:
cost of merchandise must be included in Accounts Receivable-trade P450,000
inventories
Allowance for Doubtful Accounts 9,000
6. Deposit on purchase of undelivered
merchandise total 441,000

advances to suppliers (current assets) During 2016, transactions relating to the accounts
were as follows:
7. Claims from employees representing cash
advances What is the journal entry to record this
transaction?
receivables from employees (current assets)
1. Sales on account, P4,800,000
8. Receivables arising from subscription to the
company’s share capital debit accounts receivable 4,800,000 and credit
sales 4,800,000
2. Cash received from the collection of current debit loans payable-bank 150,000 and credit
receivable totaled P3,920,000 after discounts of cash 150,000
P80,000 were allowed for prompt payment.
Based on an assessment of the impairment of
Debit Cash 3,920,000 and debit Sales discount receivables, it is estimated that allowance for
80,000 and credit accounts receivable 4,000,000 uncollectible accounts should be P59,000 at
December 31.
3. Credit memo issued to customers for sales
returns, P60,000. Allowance for DAE, before adjustment 9,000
debit sales returns and allowances 60,000 and Accounts written off (20,000)
credit accounts receivable 60,000
Recovery of accounts written off prior to 2016 5,000
4. Customer’s accounts of P20,000 were
Doubtful Accounts Expense (adjustment) 65,000
ascertained worthless and written off.
Required Allowance for DAE, after adjustment
debit allowance for doubtful accounts 20,000
59,000
and credit accounts receivable 20,000
11. Indicate the journal entry to record the
Recovered P5,000 of accounts written off prior
adjustment.
to 2016.
debit doubtful accounts expense 65,000 and
5. Indicate the journal entry to record write-off.
credit allowance for doubtful accounts 65,000
debit accounts receivable 5,000 and credit
Recorded the accrued interest on the note in (f).
allowance for doubtful accounts 5,000
The note was dated December 1, 2015.
6. Indicate the journal entry to record collection of
12. Indicate the journal entry to record accrued
previously written off accounts receivable.
interest.
debit cash 5,000 and credit accounts receivable
debit accrued interest receivable 250 and credit
5,000
interest income 250
7. Received a 90-day, 12% note for P25,000 from
13. Based on the items affecting accounts
a customer on an overdue account.
receivable and allowance for doubtful accounts
debit notes receivable 25,000 and credit expense, how much is the amortized cost of the
accounts receivable 25,000 accounts receivable at December 31, 2016?
936,000
Accounts receivable of P700,000 have been
pledged to a local bank on a loan of P400,000. PRACTICE TEST 3.3 A/R
Collections of P150,000 were made on these
T/F
receivables (not included in the collections
previously given) and applied as partial 1. The entry to write off an uncollectible account
payment to the loan. under the allowance method is a debit to
Doubtful Accounts Expense and a credit to
8. Indicate the journal entry to record accounts
Accounts Receivable.
receivable pledged to a local bank;
debit cash 400,000 and credit loans payable- 2. The "list" sales price less any trade discount is
bank 400,000 the invoice amount.
9. Indicate the journal entry to record collections of
3. The method of estimating uncollectible
150,000;
accounts expense based on the accounts
debit cash 150,000 and credit accounts receivable balance emphasizes the
receivable 150,000 determination of the net realizable value of the
receivables.
10. Indicate the journal entry to record partial
payment to loan, P150,000.
4. Accounts receivable are to be reported at their experience, 2% of Judy 's credit sales have
net realizable value. been uncollectible. During 20x1, Judy wrote off
₱325,000 of uncollectible accounts. Credit sales
5. The aging method of estimating doubtful for 20x1 were ₱9,000,000. In its December 31,
accounts is a variation of the percentage of 20x1, balance sheet, what amount should Judy
ending receivables method. report as allowance for uncollectible accounts?
115000
6. The use of the direct write-off method is
acceptable under generally accepted 3. Gray Company had an accounts receivable
accounting principles. balance of ₱50,000 on December 31, 2001, and
₱75,000 on December 31, 2002. The company
7. When estimating collectability based on an wrote off ₱20,000 of accounts receivable during
analysis of the accounts receivable balance, 2002, and collected ₱3,000 on an account
any existing balance in the allowance for written off in 2000. Sales for the year 2002
doubtful accounts is ignored. totaled ₱620,000. All sales were on account.
The amount collected from customers on
8. Sales discounts are normally reported as selling accounts receivable during 2002, including
expenses. recoveries, was 578000

9. The direct write-off method for uncollectible

accounts does not provide for the matching of 4. The following information is from the records of
current revenues with related expenses. Prosser, Inc. for the year ended December 31,
2002.
10. Doubtful accounts expense is normally reported
Allowance for Doubtful Accounts, January 1, 2002 .
as a deduction from sales in the income
₱ 6,000 (cr)
statement.
Sales,2002
PRACTICE TEST 3.4 A/R
2,920,000
1. Richards Company uses the allowance method
Sales Returns and Allowances, 2002 32,000
of accounting for bad debts. The following
summary schedule was prepared from an aging If the basis for estimating bad debts is 1 percent of
of accounts receivable outstanding on net sales, the correct amount of doubtful accounts
December 31 of the current year. expense for 2002 is 28880
The following additional information is available for 5. Based on the aging of its accounts receivable at
the current year: December 31, Pribob Company determined that
the net realizable value of the receivables at
Net credit sales for the year
that date is ₱760,000. Additional information is
₱4,000,000
as follows:
Allowance for Doubtful Accounts:
Accounts Receivable at December 31
Balance, January 1 45,000(cr) ₱880,000
Balance before adjustment, December 31 2,000 Allowance for Doubtful Accounts at January 1
(dr) 128,000 (cr)
If Richards determines bad debt expense using 1.5 Accounts written off as uncollectible during the year
percent of net credit sales, the net realizable value 88,000
of accounts receivable on the December 31
Pribob's doubtful accounts expense for the year
balance sheet will be 742000
ended December 31 is 160000
2. At January 1, 20x1, Judy Co. had a credit
balance of ₱260,000 in its allowance for
uncollectible accounts. Based on past
6. Maple Company provides for doubtful accounts ₱1,000,000, the doubtful accounts expense for
expense at the rate of 3 percent of credit sales. 2002 should be 20000
The following data are available for last year:
PRACTICE TEST 3.4.1 A/R
Allowance for Doubtful Accounts, January 1
1. Dec Company uses the statement of financial
₱ 54,000 (cr)
position approach in estimating uncollectible
Accounts written off as uncollectible during the year accounts expense. The company prepares an
60,000 adjusting entry to recognize this expense at the
end of each month. During the month of July,
Collection of accounts written off in prior years
the company wrote off a P1,000 receivable and
(customer credit was re-established) 15,000
made no recoveries of previous write-offs.
Credit sales, year-ended December 31 3,000,000 Following the adjusting entry for July, the credit
balance in the Allowance for Doubtful Accounts
The allowance for doubtful accounts balance at was P2,500 larger than it was on July 1. What
December 31, after adjusting entries, should be amount of uncollectible account expense was
99000 recorded for July?
7. Gekko, Inc. reported the following balances a) 1,000
(after adjustment) at the end of 2002 and 2001. b) 3,500
c) 1,500
12/31/2002 12/31/2001 d) 2,500
Total accounts receivable ₱105,000 // ₱96,000
2. A method of estimating bad debts that focuses
Net accounts receivable 102,000 // 94,500 on the balance sheet rather than the income
statement is the allowance method based on
During 2002, Gekko wrote off customer accounts a) specific accounts determined to be
totaling ₱3,200 and collected ₱800 on accounts uncollectible.
written off in previous years. Gekko's doubtful b) aging the trade receivable accounts.
accounts expense for the year ending December c) direct write-off.
31, 2002 is 3900 d) credit sales.
8. An analysis and aging of the accounts
receivable of Shriner Company at December 31 3. Which of the following is incorrect?
revealed the following data: a) The operating cycle sometimes is shorter
than one year in duration.
Accounts Receivable b) The operating cycle sometimes is longer
₱450,000 than one year in duration.
c) The operating cycle always is one year in
Allowance for Doubtful Accounts (before
duration.
adjustment) 25,000(cr)
d) The operating cycle is a concept applicable
Required ending balance of allowance both to manufacturing and retailing
32,000(cr) enterprises.

The net realizable value of the accounts receivable 4. When the allowance method of recognizing bad
at December 31 should be 418000 debt expense is used, the entry to record the
9. Based on its past collection experience, Ace write-off of a specific uncollectible account
Company provides for bad debts at the rate of 2 would decrease
percent of net credit sales. On January 1, 2002, a) allowance for doubtful accounts.
the allowance for doubtful accounts credit b) net income.
balance was ₱10,000. During 2002, Ace wrote c) working capital.
off ₱18,000 of uncollectible receivables and d) net realizable value of accounts receivable.
recovered ₱5,000 on accounts written off in
prior years. If net credit sales for 1999 totaled
5. When comparing the allowance method of c) represents the loss in the value of accounts
accounting for bad debts with the direct write-off receivable which eventually turn out to be
method, which of the following is true? uncollectible.
a) The allowance method is less exact but it d) is the amount a business must pay to a
better illustrates the matching principle. collection agency to recover amounts on
b) The direct write-off method is theoretically overdue accounts receivable
superior.
c) The direct write-off method requires two 9. When individual customers' accounts have
separate entries to write off an uncollectible credit balances of material amounts, these
account. amounts:
d) The direct write-off method is exact and also a) Maybe deducted from the debit balance in other
better illustrates the matching principle. customers' accounts on the statement of
financial position.
6. At December 31, before adjusting and closing b) Should be omitted from the statement of
the accounts had occurred, the Allowance for financial position.
Doubtful Accounts of Wise Corporation showed c) Must be reported (or disclosed) separately in
a debit balance of P5,300. An aging of the the liability section of the statement of financial
accounts receivable indicated the amount position.
probably uncollectible to be P3,900. Under d) may be shown as "credit balances of
these circumstances, a year-end adjusting entry customer's accounts" in the current assets
for uncollectible accounts expense would section.
include a:
a) debit to the Allowance for Doubtful Accounts for 10. The entry
P1,400
Accounts Receivable xxx
b) debit to Uncollectible Accounts Expense,
P9,200. Allowance for Uncollectible Accounts xxx
c) credit to the Allowance for Doubtful Accounts for
P1,400 would be made when
d) debit to Uncollectible Accounts Expense, a) a previously defaulted customer pays its
P3,900. outstanding balance.
b) estimated uncollectible receivables are too low.
7. Which of the following statements is true? c) a customer pays its account balance.
a) The sole justification for providing for doubtful d) a customer defaults on its account.
accounts is conservatism.
b) Provision for bad debt losses on trade notes 11. Which of the following accounting principles
receivable is usually included in computing the primarily supports the use of allowance for
balance of "Allowance for Doubtful Accounts." doubtful accounts?
c) Trade accounts receivable are the only asset on a) Continuity principle
which bad debt expense can be incurred. b) Matching principle
d) Methods of estimating bad debts based upon c) Cost principle
collectibility of accounts receivable emphasize d) Full disclosure principle
the income statement rather than the statement e) Going concern principle
of financial position.
12. Which of the following should be recorded in
8. Uncollectible accounts expense: Accounts Receivable?
a) should not occur if the credit department a) Receivables from subsidiaries
properly investigates prospective customers b) Dividends receivable
who wish to purchase merchandise on credit c) Receivables from officers
b) is the amount of cash a business must pay d) None of these
each time a credit customer fails to pay his or
her account. 13. Which of the following statements is incorrect?
a) If the estimates of bad debt expense is made on c) increase the accounts receivable balance
the basis of net realizable value of the accounts and increase net income.
receivable, the balance of the account, d) increase net income.
"Allowance for Doubtful Accounts," is adjusted
so that the adjusted balance reflects the 18. Which of the following statements is correct?
computed amount needed to properly value the a) An estimate of bad debt expense based upon
receivables. credit sales rather that total sales will likely be
b) If credit terms to customers were 2/10, n/30, a more in conformity with the matching principle.
two-percent discount will be granted if payment b) When a specified bad debt which has already
is made within 10 days of the date of sale. been written off is later collected, sales revenue
c) If the allowance for doubtful accounts has been is increased by the amount of the recovery.
underestimated, a sale of the total related c) The net realizable value of the total amount of
receivables to a factor is more likely to result in accounts receivable is defined as the gross
a gain than in a loss. amount billed to customers less any cash and
d) If the estimate of bad debt expense is made on trade discounts.
the basis of net credit sales, an entry is made d) The primary accounting principle supporting the
each period to the account, "Allowance for use of the allowance for doubtful accounts is
Doubtful Accounts," without regard to the prior the cost principle.
balance in that account.
19. When a specific customer's account is written
14. Lopez Inc. had accounts receivable of off by a company using the allowance method,
P200,000 and an allowance for doubtful the effect on net income and the net realizable
accounts of P8,500. The amortized cost of the value of the accounts receivable is
accounts receivable was
Net Realizable Value
a) 200,000
b) 192,500 Net Income of Accounts Receivable
c) 208,500
d) 191,500 a. None None
b. Decrease Decrease
15. Scotch Company, which has an adequate c. Increase Increase
amount in its Allowance for Doubtful Accounts, d. Decrease None
write off as uncollectible an account receivable
from a bankrupt customer. This action will: 20. Concorde Company uses the allowance method
a) reduce total current assets of accounting for uncollectible accounts. During
b) have no effect on total current assets 2014, Concorde had charged to bad debt
c) reduce net income for the period expense P5,000 Concorde's working capital
d) reduce the amount of owner's equity (current assets - current liabilities) would be
increased (decreased) by:
16. The category "trade receivables" includes a) (5,000)
a) claims against insurance companies for b) 5,000
casualties sustained. c) (4,400)
b) income tax refunds receivable. d) 4,400
c) advances to officers and employees.
d) none of these. 21. The allowance method of recognizing bad debt
expense can be applied in more than one way.
17. When the direct write-off method of recognizing What two conditions must be met before the
bad debt expense is used, the entry to write off allowance method can be used?
a specific customer account would a) bad debts must be probable and estimable
a) have no effect on net income. b) bad debts must be relevant and reliable
b) decrease the accounts receivable balance c) bad debts must be expected and material.
and decrease net income. d) bad debts must be consistent over time and
the method used to estimate them must be
consistently applied
 b) factored.
22. Which of the following would be classified as c) pledged.
trade receivable? d) assigned.
a) Cash dividends receivable
b) Amounts due from customers 2. A higher interest rate results to
c) Loans to employees a) same amount of present value.
d) Claims in litigation b) increased amount of present value.
c) Answer cannot be determined due to
23. When the allowance method of recognizing bad insufficient data
debt expense is used, the entries at the time of d) decreased amount of present value.
collection of a small account previously written
off would 3. Which of the following is a method of generating
a) decrease net income. cash from accounts receivable?
b) decrease the allowance for doubtful
Assignment Factoring
accounts.
c) increase net income. a. Yes No
d) increase the allowance for doubtful
accounts. b. Yes Yes
c. No Yes
24. Accounts receivable appear in the statement of
financial position: d. No No
a) only if the statement of financial position
a) Face amount less the Discount
method of estimating uncollectible accounts is
b) Maturity value multiplied by the Discount
used.
c) Maturity value less the Discount
b) as current assets, combined with cash and cash
d) Maturity value multiplied by the Discount
equivalents
rate multiplied by the Discount period.
c) as either current assets or noncurrent assets,
4. What factor should you use for a ₱2,000 note
depending on whether the allowance method or
receivable that is collectible in full after five
the direct write-off method is used to account
years?
for uncollectible accounts.
a) Any of these
d) as current assets, immediately after cash and
b) Present value of 1
cash equivalents
c) Present value of an ordinary annuity of 1
d) Present value of an annuity due of 1
25. Prior to adjustments, SPF's Company account
balance at December 31, 2014 for Accounts
5. A higher interest rate results to
Receivable and the related Allowance for
a) decreased amount of present value.
Doubtful Accounts were P1,200,000 and
b) shorter accountant.
P60,000, respectively. An aging of accounts
c) increased amount of present value.
receivable may be uncollectible. The amortized
d) same amount of present value.
cost of accounts receivable was
a) 1,140,000
6. Which of the following results to the smallest
b) 1,094,000
value?
c) 1,154,000
a) Present value of 1 @12%, n=5
d) 1,034,000
b) Present value of an annuity due of 1 @12%,
PRACTICE TEST 3.5 NOTES RECEIVABLE n=5
c) Present value of 1 @14%, n=5
1. When the accounts receivable of a company d) Present value of an ordinary annuity of 1
are sold outright to a company that normally @12%, n=5
buys accounts receivable of other companies
without recourse, the accounts receivable have 7. The balance in Accounts Receivable is not
been reduced in recording which of the following
a) transferred with recourse. types of financing arrangements?
 a) Transfer of accounts receivable without 12. Multiplying a lump sum future amount by a
recourse Present Value of 1 factor results to
b) Assignment of specific accounts receivable a) Future value of 1.
c) General assignment (pledge) of accounts b) Present value of 1.
receivable c) Present value.
d) Factoring of accounts receivable d) Future amount.

8. The present value of 1 for a period of zero 13. Which of the following factors would show the
equals largest value for an interest rate of 12% for six
a) Answer depends on the interest rate periods?
b) Error! a) Present value of 1
c) 0 b) Present value of an annuity due of 1
d) 1 c) Present value of an ordinary annuity of 1
d) Answer cannot be determined
9. What factor should you use for a ₱1,000 note
receivable that is collectible in five annual 14. What factor should you use if you want to
installments of ₱200 starting one year hence? determine the value now of a ₱1,000 payment
a) Present value of 1 due in three years’ time?
b) Present value of an ordinary annuity of 1
the following factors would show the largest value
c) Present value of an annuity due of 1
for an interest rate of 12% for six periods?
d) Any of these
a) Present value of 1
10. Which of the following is a method of generating b) Present value of an ordinary annuity of 1
cash from accounts receivable? c) Future value of 1
d) Present value of an annuity due of 1
Assignment Factoring
a. Yes No 15. Which of the following is most likely not a
condition before a transfer of receivables is
b. Yes Yes
accounted for as a sale?
c. No Yes a) The transferor does not maintain effective
control over the assets through an agreement to
d. No No repurchase the assets before their maturity.
a) The transaction may be accounted for either as b) The transferee has the right to pledge or
a secured borrowing or as a sale, depending exchange the transferred assets.
upon the substance of the transaction. c) The transferred assets have been isolated from
b) The factor assumes the risk of collectability and the transferor.
absorbs any credit losses in collecting the d) The transferor's obligation under the recourse
receivables. provisions can be reasonably estimated.
c) The receivables are used as collateral for a
promissory note issued to the factor by the 16. A 180-day, 12 percent interest-bearing note
owner of the receivables. receivable is sold to a bank after being held for
d) The financing cost (interest expense) should be 45 days. The proceeds are calculated using a
recognized ratably over the collection period of 15 percent interest rate. The note receivable
the receivables. has been
Discounted Pledged
11. Present value is
a) always smaller than the future value. a. Yes Yes
b) the amount that must be invested now to
b. Yes No
produce a known future value.
c) the value now of a future amount. c. No Yes
d) all of these.
d. No No
 equal annual installments starting on January 1,
20x1 and every January 1 thereafter. The prevailing
17. The entry to record a note receivable
rate of interest for this type of note is 12%.
discounted with a bank most likely includes
a) Crediting note receivable equal to the face 1. How much is the carrying amount of the
amount of the note receivable on December 31, 20x1?
b) Debiting cash equal to the maturity value of the a) 892,857
note b) 1,594,388
c) Debiting cash equal to the face amount of the c) 2,690,051
note d) 1,690,510
d) Crediting note receivable equal to the maturity
value of the note 2. How much is the carrying amount of the
receivable on January 1, 20x3?
18. Which of the following may result to the a) 6,000,000
derecognition of a receivable? b) 6,074,699
a) The receivable is transferred and the c) 3,380,102
transferor retains control over the d) 892,857
transferred receivable.
b) The contractual rights to the cash flows from 3. How much is the interest income in 20x1?
the receivable expire. a) 408,230
c) The receivable is impaired. b) 288,220
d) a and c. c) 328,964
d) 278,334
19. Which of the following is true when accounts
receivable are factored without recourse? 4. On January 1, 20x1, ABC Co. sold
a) The transaction may be accounted for either as transportation equipment with a historical cost
a secured borrowing or as a sale, depending of ₱20,000,000 and accumulated depreciation
upon the substance of the transaction. of ₱7,000,000 in exchange for cash of
b) The receivables are used as collateral for a ₱500,000 and a noninterest-bearing note
promissory note issued to the factor by the receivable of ₱8,000,000 due in 4 equal annual
owner of the receivables. installments starting on December 31, 20x1 and
c) The financing cost (interest expense) should be every December 31 thereafter. The prevailing
recognized ratably over the collection period of rate of interest for this type of note is 12%.
the receivables.
d) The factor assumes the risk of collectability and How much is the interest income in 20x1?
absorbs any credit losses in collecting the a) 728,964
receivables. b) 678,334
c) 704,236
20. A 90-day, 15 percent interest-bearing note d) 728,946
receivable was immediately discounted at a 5. On January 1, 20x1, ABC Co. sold
bank at 12 percent. The proceeds received from transportation equipment with a historical cost
the bank upon discounting would be the of ₱1,000,000 and accumulated depreciation of
a) maturity value less the discount at 15 percent. ₱300,000 in exchange for cash of ₱100,000
b) face value less the discount at 15 percent. and a noninterest-bearing note receivable of
c) face value less the discount at 12 percent. ₱800,000 due on January 1, 20x4. The
d) maturity value less the discount at 12 percent. prevailing rate of interest for this type of note is
PRACTICE TEST 3.6 NOTES RECEIVABLE 12%?

On January 1, 20x1, ABC Co. sold transportation How much is the carrying amount of the receivable
equipment with a historical cost of ₱12,000,000 and on December 31, 20x2?
accumulated depreciation of ₱7,000,000 in a) 714,286
exchange for cash of ₱100,000 and a noninterest- b) 800,000
bearing note receivable of ₱4,000,000 due in 4
 c) 637,755 c) Net receivable of ₱50,000 is recognized on the
d) 569,424 date of sale.
d) Net receivable of ₱50,000 is recognized upon
full payment of the total price.
On January 1, 20x1, ABC Co. sold transportation
equipment with a historical cost of ₱20,000,000 and
10. An entity sells goods for ₱150,000 to a
accumulated depreciation of ₱7,000,000 in
customer who was granted a special credit
exchange for cash of ₱500,000 and a noninterest-
period of 1 year. The entity normally sells the
bearing note receivable of ₱8,000,000 due in 4
goods for ₱120,000 with a credit period of one
equal annual installments starting on December 31,
month or with a ₱10,000 discount for outright
20x1 and every December 31 thereafter. The
payment in cash. How much is the initial
prevailing rate of interest for this type of note is
measurement of the receivable?
12%.
a) 110,000
6. How much is the carrying amount of the b) 120,000
receivable on December 31, 20x2? c) 130,000
a) 6,000,000 d) 150,000
b) 4,803,663
PRACTICE TEST 3.7 RECEIVABLE FINANCING
c) 3,380,102
d) 6,074,699 1. On February 1, 2004, Norton Company factored
receivables with a carrying amount of ₱500,000
7. How much is the current portion of the to Koch Company. Koch Company assessed a
receivable on December 31, 20x1? finance charge of 3% of the receivables and
a) 1,423,560 retains 5% of the receivables. Relative to this
b) 1,271,036 transaction, you are to determine the amount of
c) 1,594,388 loss on sale to be reported in the income
d) 3,380,102 statement of Norton Company for February.
Assume that Norton factors the receivables on a
8. On January 1, 20x1, ABC Co. sold
without recourse basis. The loss to be reported is
transportation equipment with a historical cost
of ₱1,000,000 and accumulated depreciation of a) ₱0.
₱300,000 in exchange for cash of ₱100,000 b) ₱25,000.
and a noninterest-bearing note receivable of c) ₱15,000.
₱800,000 due on January 1, 20x4. The d) ₱40,000.
prevailing rate of interest for this type of note is
12%? 2. Jason Co. assigned ₱1,000,000 of accounts
receivable to Easy Finance Co. as security for a
How much is the interest income in 20x1?
loan of ₱840,000. Easy charged a 2%
a) 68,331 commission on the amount of the loan; the
b) 76,532 interest rate on the note was 10%. During the
c) 96,000 first month, Jason collected ₱220,000 on the
d) 85,714 assigned accounts after deducting ₱760 of
9. An entity sells goods either on cash basis or on discounts. Jason accepted returns worth
6-month installment basis. On January 1, 20x1, ₱2,700 and wrote off assigned accounts totaling
goods with cash price of ₱50,000 were sold at ₱7,400.
an installment price of ₱75,000. Which of the
Entries during the first month would include a
following statements is correct?
a) Net receivable of ₱75,000 is recognized on the a) debit to Bad Debt Expense of ₱7,400.
date of sale. b) debit to Allowance for Doubtful Accounts of
b) The ₱20,000 difference between the cash price ₱7,400.
and installment price is recognized as interest c) debit to Accounts Receivable of ₱230,860.
income on the date of sale. d) debit to Cash of ₱220,760.
3. If a 3-month non-interest-bearing note c) ₱756,000.
receivable of ₱10,000 is discounted at a bank at d) ₱840,000.
10 percent, how much cash is received?
a) ₱1,010 7. On February 1, 2004, Norton Company factored
b) ₱9,750 receivables with a carrying amount of ₱500,000
c) ₱10 to Koch Company. Koch Company assessed a
d) ₱999 finance charge of 3% of the receivables and
retains 5% of the receivables. Relative to this
4. On September 1, Riva Co. assigns specific transaction, you are to determine the amount of
receivables totaling ₱750,000 to Pacific Bank loss on sale to be reported in the income
as collateral on a ₱625,000, 12 percent note. statement of Norton Company for February.
Riva Co. will continue to collect the assigned
Assume that Norton factors the receivables on a
accounts receivable. Pacific also assesses a 2
with recourse basis. The recourse obligation has a
percent service charge on the total accounts
fair value of ₱2,500. The loss to be reported is
receivable assigned. Riva Co. is to make
monthly payments to Pacific with cash collected a) ₱42,500.
on assigned accounts receivable. Collections of b) ₱17,500.
assigned accounts during September totaled c) ₱15,000.
₱260,000 less cash discounts of ₱3,500. What d) ₱25,000.
were the proceeds from the assignment of
Riva's accounts receivable on September 1? 8. On September 1, Riva Co. assigns specific
a) ₱735,000 receivables totaling ₱750,000 to Pacific Bank
b) ₱625,000 as collateral on a ₱625,000, 12 percent note.
c) ₱610,000 Riva Co. will continue to collect the assigned
d) ₱612,500 accounts receivable. Pacific also assesses a 2
percent service charge on the total accounts
5. On January 1, Parent Company gave Kids, Inc. receivable assigned. Riva Co. is to make
a ₱5,000, 2-month, 6 percent note in payment monthly payments to Pacific with cash collected
of its account. One month later, Kids discounted on assigned accounts receivable. Collections of
the note at the bank at 8 percent. The cash that assigned accounts during September totaled
Kids received from the bank was (rounded to ₱260,000 less cash discounts of ₱3,500. What
the nearest dollar) amount is owed to Pacific by Riva Co. for
a) ₱5,010. September collections plus accrued interest on
b) ₱4,960. the note to September 30?
c) ₱5,022. a) ₱264,000
d) ₱5,016 b) ₱260,000
c) ₱262,750
6. Jason Co. assigned ₱1,000,000 of accounts d) ₱266,250
receivable to Easy Finance Co. as security for a
loan of ₱840,000. Easy charged a 2% 9. Simpson Company held a ₱6,000, 3-month, 15
commission on the amount of the loan; the percent note. One month before maturity, it
interest rate on the note was 10%. During the discounted the note at 10 percent at a local
first month, Jason collected ₱220,000 on the bank. Approximately how much net income did
assigned accounts after deducting ₱760 of Simpson earn on the note?
discounts. Jason accepted returns worth a) ₱60
₱2,700 and wrote off assigned accounts totaling b) ₱52
₱7,400. c) ₱225
d) ₱173
The amount of cash Jason received from Easy at
the time of the transfer was
10. On June 1, Clinton Corporation accepted a
a) ₱820,000. customer's ₱10,000, 9 percent, 3 month note.
b) ₱823,200. On July 1, the note was discounted at a bank at
 a rate of 12 percent. How much cash did 5. If a company usually sells its accounts
Clinton receive from the bank on the discounted receivable, it records any factoring commissions
note? as a(an):
a) ₱10,020.50 a) expense
b) ₱9,800.00 b) loss
c) ₱9,942.50 c) receivable
d) ₱10,250.00 d) liability
PRACTICE TEST 3.8 RECEIVABLE FINANCING
6. Choose the correct statement about recording
1. A non-interest bearing note receivable: the discounting (with recourse) of a customer's
a) includes a specified principal amount plus four-month note with a financial institution.
specified interest Assume the note is held for a month before it is
b) causes no interest revenue to be recorded discounted.
c) includes a specified principal amount but an a) The gain or loss on discounting equals the
unspecified interest amount difference between the proceeds and the
d) includes an unspecified principal amount face value of the note.
and an unspecified interest amount b) There is only one way to disclose the
contingent liability.
2. Happy Inc., assigned P10,000 to a finance c) The financial institution bases its discount
company, receiving an advance of 90% less a (fee) on the face value of the note.
service charge of P400. Later, P2,000 of these d) The notes receivable discounted account
receivables were collected and remitted to the represents both a contra-notes receivable
finance company with an additional P200 of and a contingent liability.
interest. Given this information, which entry
would not be made? 7. Which statement is not true?
a. Dr. Cash 8,600 a) Notes Receivable initially should be
Dr. Assignment Service Charge Expense 400 recorded at the present value of the future
Cr. Accounts Receivable 9,000 cash receipts on the date of issue.
b. Dr. Accounts Receivable Assigned 10,000 b) Discount on Notes Receivable is a contra-
Cr. Accounts Receivable 10,000 account frequently found with interest-
c. Dr. Cash 2,000 bearing notes.
Cr. Accounts Receivable Assigned 2,000 c) The account Notes Receivable Dishonored
d. Dr. Notes Payable 2,000 is an asset account.
Dr. Interest Expense 200 d) All notes implicitly carry interest.
Cr. Cash 2,200
8. The carrying value of an impaired note before
3. On June 11, Del-V, Inc., accepted a P7,000, recognizing a loan impairment:
6%, 60-day note from a customer. On June 26, a) excludes accrued interest.
the company discounted the note at a bank at b) is the same as the carrying value after
8%. The proceeds amounted to: recognizing the impairment.
a) P 6,976.67 c) includes accrued interest.
b) P 7,000.00 d) is less than the carrying value after
c) P 7,046.43 recognizing the impairment
d) P 6,999.30
9. Short-term non-interest bearing notes
4. Which of the following is a means of using receivable are usually recorded at their:
receivables to obtain immediate cash? a) present value.
a) All of the above b) maturity value.
b) Factoring c) net realizable value.
c) Pledging d) principal value.
d) Assignment
10. Which of the following describes the carrying c) The total amount of cash ultimately to be
value of an impaired note immediately following received will be more for the interest-
the recognition of the impairment? bearing note.
a) The book value before the impairment is d) Both notes will cause the same total interest
recognized less accrued interest to be recognized.
b) Present value of remaining cash flows to be
received, discounted at the original interest 14. When a company discounts its notes receivable
rate implicit in the note at a bank, the common practice is to record the
c) Present value of remaining cash flows to be discounted notes in a(an):
received, discounted at the current market a) asset account.
rate of interest b) contra-asset account.
d) Nominal sum of remaining cash flows to be c) liability account.
received d) expense account.

11. On September 1, 2014, Thunder Company 15. On June 3, Valiant Bank loaned a customer
received an P80,000, 12%, 120-day note from a P30,000 on a 60-day, 10% note, remitting the
credit customer wishing to extend its repayment face value less the interest to the customer.
period. On October 1, 2014, thirty days after the Which of the following journal entries would
note was received, Thunder discounted the Valiant Bank use to record the receipt of the
note at the bank at 14%. How much cash did note?
Thunder Company received from the bank? i. Dr. Notes Receivable
a) P 80,288 30,000
b) P 80,800 Cr. Interest Revenue 3,000
c) P 80,749 Cr. Cash 27,000
d) P 79,317 ii. Dr. Notes Receivable
30,000
12. Manila and Company accepted a 5,000, 8%, Cr. Interest Revenue 500
90-day note receivable for services rendered to Cr. Cash 29,500
a client. Thirty days later Manila and Company iii. Dr. Notes Receivable
discounted the note at a bank at 10%. The entry 29,500
to record the proceeds from the sales of the Cr. Cash 29,500
note would include a: iv. Dr. Notes Receivable
a) debit to cash for P51,000 30,000
b) debit to loss from discounting of note P150. Cr. Cash 30,000
c) credit to interest income for P100.
d) credit to notes receivable for P50,000 16. Which of the following would indicate that a
note receivable or other loan is impaired?
13. A company received two one-year notes in a) when the maker of the note experiences
payment for merchandise sold. One note had a financial difficulties
face amount of P6,000 and was interest-bearing b) when the market value of the note falls
at an annual rate of 18 percent. The other note below its book value due to interest rate
had a face amount of P7,080 and was non- changes
interest bearing (its implied interest rate was 18 c) when it is written off
percent). d) when it is probable that principal payments
a) The non-interest bearing note shows a will be delayed
higher book value immediately after the
sale. 17. On November 1, Senorita Blankets sold goods
b) The amount which should be credited to for P12,000 and accepted a six-month non-
sales revenue is more for the non-interest interest bearing note. Current interest rates
bearing note. were 10%. The December 31 adjusting entry
should be:
a. Dr. Interest Revenue 200
 Cr. Discount on Notes Receivable
200
b. Dr. Interest Revenue 400
Cr. Interest Receivable 400
c. Dr. Discount on Notes Receivable 200
Cr. Interest Revenue 200
d. Dr. Interest Receivable 200
Cr. Interest Revenue 200

18. The Inu-Yasha Company sells P40,000 of

accounts receivable to a factor and receives
94% of the value of the factored accounts less a
10% commission based on the gross amount of
factored accounts receivable. After the journal
entry to record this factoring transaction is
made, Inu-Yasha Company's total assets will
be:
a) increased by P33,600
b) reduced by P2,400
c) reduced by P4,000
d) increased by P4,000

19. A note receivable that is sold (i.e. discounted) to

obtain early cash must be:
a) retained in the accounts in the same
manner as before discounting.
b) reported as an extraordinary loss if it is
dishonored.
c) reported as a sale or a loan.
d) disclosed as a contingent liability if it is
discounted without recourse.

20. Which of the following is not a basic form of

financing agreement to obtain cash from
accounts receivable?
a) Pledging
b) Factoring
c) Assigning
d) Deferring