RECEIVABLES (EXERCISES)

In relation to receivables, which of the following statements is correct?

I. Trade receivables are classified as current assets only if they are collectible within one year from the
reporting date.
II. Generally, receivables are initially measured at fair value plus transaction costs.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
ANSWER: B.

If the problem is silent as to maturity of the receivables below, which of them is classified as a current trade
receivable?
I. Debit balances in accounts payable
II. Advances to affiliates
III. Promissory note received in exchange for services rendered to customers.
a. I and II
b. II and III
c. I and III
d. Answer not given
ANSWER: D

S1: A debit balance in the allowance for doubtful accounts may happen before the year-end entry for doubtful
accounts expense.
S2: Generally, doubtful accounts expense is presented as a selling expense since it is related to the collection
function of the business.
S3: The aging method of estimating doubtful accounts is a variation of the percentage of ending receivables
method.
a. True, false, false
b. False, false, true
c. True, false, true
d. False, true, true
e. True, true, false
ANSWER: C

Determine which of the following statements is false?

a. Accounts receivable are initially measured at invoice price, meaning it should be ALWAYS net of trade
discount
b. Allowance for freight charge will only appear if the entity’s shipping terms is FOB Destination, Freight
Collect
c. Of the methods to record cash discounts, gross method is more theoretically correct
d. When an entity is using allowance method of recognizing uncollectible accounts, the entry to record the
write-off of a specific account would have an effect to both accounts receivable and allowance for
doubtful accounts
ANSWER: C

Railing Co obtained a 4-year, P600,000, noninterest bearing note that requires payment in lump sum at
maturity date. Railing determined that the effective interest rate on the note is 12%. Which of the following
statements is correct?
a. Railing Co. will most likely measure the note on initial recognition by multiplying the face amount of the
note by PV of 1 @12%, n=4
b. Railing Co. will most likely measure the note on initial recognition multiplying the face amount of the
note by PV of ordinary annuity of 1 @12%, n=4
c. Railing Co.-will most likely measure the note on initial recognition by multiplying the face amount of the
note by PV of an annuity due of 1 @12%, n=4
d. Any of these as an accounting policy choice
ANSWER: A

Which of the following notes receivable is initially measured at face value?

I. Short-term non-interest bearing note where financing cost is considered to be significant.
II. Long-term interest bearing note; its nominal interest is equal to the market rate of interest.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
ANSWER: B

In calculating the carrying amount of loan receivable, the lender adds to the principal
 Interest incurred by the borrower
a.
Loan origination fee charged to the borrower
b.
Direct loan origination cost incurred by the lender
c.
Indirect loan origination cost incurred by the lender
d.
ANSWER: C

S1: The amount of impairment loss is measured as the difference between the carrying amount of the loan
receivable and the present value of estimated future cash flows discounted at the prevailing market rate of the
loan on that date.

S2: Impairment loss is presented in the Statement of Comprehensive Income as part of profit or loss.
a. True, false
b. False, true
c. False, false
d. True, true
ANSWER: B

Total receivable balance will not change if an entity entered into:

I. A pledge transaction
II. A discounting transaction accounted for under secured borrowing
III. A factoring transaction without recourse
a. I and II
b. II and III
c. I and III
d. I, II and III
e. Answer not given
ANSWER: A

I. Pledging involves collateral of specific accounts receivable.

II. Discounting of notes receivable with recourse involves derecognition of the notes receivable account.

III. In relation to assignment of accounts receivable, equity on the assigned accounts must be disclosed in the
notes to financial statements.
a. False, false, true
b. True, true, false
c. False, true, false
d. True, true, true
e. Answer not given
ANSWER: A

1/35
Question 1
If the ideal measure of short-term receivables in the statement of financial position is the discounted amount of
the cash to be received in the future, failure to follow this practice usually does not make the statement of
financial position misleading because
a. The amount of the discount is not material
b. Most receivables can be sold to a bank or factor
c. Most short-term receivables are not interest-bearing
d. The allowance for doubtful accounts includes a discount element
ANSWER: A
Note
Since a receivable is short-term in nature. It is assumed that discounting is immaterial. In other words, for
practicality purposes, the entity may not need to separate the receivable amount into its true principal and
implied interest through discounting.

Question 2
Which of the following statements is true in relation to presentation of receivables in the statement of financial
position?
a. Nontrade receivables are presented as noncurrent assets
b. Trade receivables and nontrade receivables are shown separately
c. Trade accounts receivable and trade notes receivable shall be presented separately
d. Trade receivables and nontrade receivables which are currently collectible shall be presented as one
line item called "trade and other receivables"
ANSWER: D
Note
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Trade receivable and non-trade receivables which are classified as current are presented within the non-
current asset section of the statement of financial position.

Question 3
An operating cycle
a. is twelve months or less in length
b. is the average time required for a company to collect its receivables
c. is used to determine current assets when the operating cycle is longer than one year
d. begins with inventory and ends with cash
ANSWER: C
Note
Operating cycle is used in determining whether a trade receivable is current or not. Trade receivables which
are collectible within operating cycle is classified as current even if their maturity is longer than 12 months.

Question 4
S1: The "list" sales price less any trade discount is the invoice amount.
S2: The use of the direct write-off method is acceptable under generally accepted accounting principles.
a. True, false
b. False, true
c. False, false
d. True, true
ANSWER: A
Note
S1 is true. Invoice price is the amount of sales price before cash discount. S2 is false since the acceptable
method under GAAP is allowance method.

Question 5
Which of the following is not acceptable in estimating uncollectible accounts receivable?
a. The estimate of uncollectible accounts is based on an aging schedule
b. The estimate of uncollectible accounts is based on a percentage of sales for the period
c. The estimate of uncollectible accounts is based on a percentage of the accounts receivable at the end
of a period
d. No estimate of uncollectible accounts is made but accounts are written off when it is determined they
cannot be collected
ANSWER: D
Note
No estimate of uncollectible accounts is made but accounts are written off pertains to direct write-off method.
Direct write-off method is unacceptable under PFRS.

Question 6
Statement 1: A debit balance in the allowance for doubtful accounts may happen after the year-end entry for
doubtful accounts expense.
Statement 2: Direct write-off is prohibited to be used in the accounting department of a company.
Statement 3: Generally, doubtful accounts expense is presented as an administrative expense.
a. False,False,True
b. True,True,False
c. False,True,False
d. True,True,True
Answer: A
Note
S1: A debit balance in ADA may happen BEFORE final adjusting entry for doubtful accounts expense.
S2: Direct write-off is used in accounting department for tax purposes since the tax code requires the use of
such method.

Question 7
Which of the following may not be an acceptable method of computing for doubtful accounts to be charged to
profit or loss?
a. Percentage of sales
b. Percentage of ending balance of accounts receivable
c. Percentage of ending balance of accounts receivable
d. Partly based on aging and partly based on percentage of specific accounts receivables
ANSWER: A
Note To be correct, it should be percentage of credit sales. Combination of different methods is allowed under
GAAP.
Question 8

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Under the allowance method of recognizing bad debts on trade accounts receivable, the effect of writing off an
account to an entity's working capital is
a. increase
b. decrease
c. either a or b depending on the current level of the entity's working capital
d. no effect
ANSWER: D
Note The entry for write-off under the allowance method includes a debit to ADA and credit to AR. Thus, NRV
of AR is unaffected by such entry.

Question 9
The category "trade receivables" includes
a. advances to officers and employees
b. income tax refunds receivable
c. claims against insurance companies for casualties sustained
d. none of these
ANSWER: D
Note
Advances to officers and employees, Income tax refunds receivable and claims receivable are all NON-TRADE
receivables.

Question 10
Which of the following freight-terms creates an allowance for freight charge?
a. FOB Shipping Point Freight Prepaid
b. FOB Shipping Point Freight Collect
c. FOB Destination Freight Prepaid
d. FOB Destination Freight Collect
ANSWER: D
Note
Allowance for freight charge is created if the freight term is FOB Destination Freight Collect since the party
chargeable for the freight cost is the seller but the party actually paid for the freight cost is the buyer.

Question 11
Evaluate whether the following statements are true or false in relation to accounts receivable.
I. Aging of accounts receivable, as a method of estimating doubtful accounts, is the same with percentage of
accounts receivable but the latter is a detailed analysis per age.
II. Non-trade accounts receivable doesn’t form part of the heading “Trade and Other Receivables”.
III. Doubtful accounts expense is presented as a selling cost if the credit department head approves the credit
limit of receivables.
a. True,False,False
b. False,False,False
c. False,True,False
d. True,True,False
ANSWER: B
Note
I – Aging method is a variation of percentage of AR method since a percentage is being multiplied to AR
balance but this is done on a per age basis.
II – Non-trade receivables are part of the line item “Trade and Other Receivables” if they are currently
collectible (e.g. collectible within 12 months after the end of the reporting period).
III – If the credit department head approves the credit limit, doubtful accounts expense is presented as an
administrative cost rather than selling cost.

Question 12
If the problem is silent as to maturity of the receivables below, which of them is classified as a current non-
trade receivable?
I. Claims against the shipper for inventories lost in transit
II. Debit balances in accounts payable
III. Receivable from customers for their purchases of entity’s inventories
IV. Subscriptions Receivable
a. I, II, III and IV
b. I, II and III
c. I. II and IV
d. I and II
e. I, III and IV
Answer: D
Note
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The question requires the determination of CURRENT NON-TRADE RECEIVABLE. Receivable from
customers for their purchases of entity’s inventories is a current receivable but TRADE. Since the question is
silent as to the maturity of the receivable subscriptions receivable is presented as a deduction within
shareholders’ equity.

Question 13
Why is the allowance method preferred over the direct writeoff method of accounting for bad debts?
a. Estimates are used
b. The allowance method is used for tax purposes
c. Improved matching of bad debt expense with revenue is achieved
d. Determining worthless accounts under direct writeoff method is difficult to do
ANSWER: C
Note
Allowance method is preferred over direct write-off method since it follows the conservatism principle and
matching principle.

Question 14
Which of the following methods of determining bad debt expense most closely matches expense to revenue?
a. Charging bad debts with a percentage of sales for that period
b. Charging bad debts only as accounts are written off as uncollectible
c. Estimating the allowance for doubtful accounts by aging the accounts receivable
d. Estimating the allowance for doubtful accounts as a percentage of accounts receivable
ANSWER: A
Note
Among the methods under the allowance method, percentage of credit sales method is the best method in
terms of matching expenses to revenues.

Question 15
Drops Co. receives a 3-year, P600,000, noninterest bearing note that requires three equal annual payments at
the end of each year. The effective interest rate on the note is 14%. How should Drops Co. measure the note
on initial recognition?
a. P600,000 x PV of ordinary annuity of 1 @14%, n=3
b. P600,000 x PV of 1 @14%, n=3
c. P200,000 x PV of ordinary annuity of 1 @14%, n=3
d. P200,000 x PV of an annuity due of 1 @14%, n=3
ANSWER: C
Note
Since the note requires three equal annual payments at the end of each year, present value of ordinary annuity
of 1 at 14% for 3 periods shall be used.

Question 16
An entity receives a three-year, P1M noninterest-bearing note that matures in lump sum payment. The
effective interest rate is 12%. Which of the following is correct?
a. The measurement of the note on initial recognition is computed as P1M x PV of an ordinary annuity of 1
@12%, n=4
b. No interest income shall be recognized on the note because it is noninterest-bearing
c. The amortized cost of the note increases each year
d. The amortized cost of the note decreases each year
ANSWER: C
Note
The measurement of the note on initial recognition is computed as P1M x PV of 1 @12% for 4 periods. Interest
income is computed by multiplying the effective interest rate by the previous carrying amount. Since the initial
measurement resulted to a discount, the amortized cost (carrying amount at each reporting period) increases.

Question 17
SVELTE SLENDER Co. received a 3-year, 3%, note receivable from one of its customers. The current rate at
the date of receipt of the note was 12%. SVELTE should initially recognize the receivable at
a. face amount
b. present value
c. appraised value
d. fair value less costs to sell
ANSWER: B
Note The note is measured at present value since its classification is long-term note bearing an unreasonable
interest rate.

Question 18
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Which of the following notes receivable is not usually recorded at present value?
a. Long-term interest bearing notes - Yes ; 1-year non-interest bearing notes - Yes ; 3-year non-interest
bearing notes - No
b. Long-term interest bearing notes - No ; 1-year non-interest bearing notes - Yes ; 3-year non-interest
bearing notes -Yes
c. Long-term interest bearing notes - Yes ; 1-year non-interest bearing notes - No ; 3-year non-interest
bearing notes -No
d. Long-term interest bearing notes - No ; 1-year non-interest bearing notes - No ; 3-year non-interest
bearing notes -Yes
e. Long-term interest bearing notes - Yes ; 1-year non-interest bearing notes - Yes ; 3-year non-interest
bearing notes - Yes
ANSWER: A
Note 3-year non-interest bearing notes are measured at present value.

Question 19
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate.
The face amount of the note receivable and the entire amount of the interest are due on June 30 of next year.
On December 31 of the current year, the entity should report in the statement of financial position
a. No interest receivable
b. A deferred credit for interest applicable to next year
c. Interest receivable for the interest accruing this year
d. Interest receivable for the entire amount of the interest due on June 30 of next year
ANSWER: C
Note
Interest income is an income due to passage of time, an entity should accrue interest on December 31 of the
current year as part of its adjusting entries.

Question 20
Total interest income recognized over the life of a noninterest-bearing note is
a. zero
b. greater than the total interest received on the note
c. less than the total interest received on the note
d. equal to the unearned interest income on initial recognition
ANSWER: D
Note The total interest income recognized over the life of a noninterest-bearing note is equal to the unearned
interest income on initial recognition. The role of amortization table is to allocate the unearned interest income
to different periods through the use of effective interest method.

Question 22
Spongebob Squarepants lent P2,000 to Squidward for one year at 10% interest, all due at maturity. He insisted
the terms of the transaction be formalized in promissory note. In this situation:
• the maturity value of the note is P2,000
• Spongebob Squarepants is considered the maker of the note and records the note as an asset in his
accounting records
• Spongebob Squarepants is considered the maker of the note and records the note as a liability in his
accounting records
• Squidward is considered the maker of the note and records the note as a liability in his accounting
records
ANSWER: D
Note
On this transaction, Squidward, the borrower, is the maker of the promissory note and thus maintains a liability
account in its accounting records. On the other hand, Spongebob, the lender, is the holder of the promissory
note and thus maintains an asset account in its accounting records.

Question 23
Which of the following is true regarding, non-interest bearing, note receivables?
a. they are always discounted to their present value on initial recognition
b. they include a specified principal amount but an unspecified interest amount
c. they include a specified principal and specified interest
d. they cause no interest income to be recognized over their term
e. they include an unspecified-principal and an unspecified interest
ANSWER: E
Note Non-interest bearing, note receivables are not-always measured at present value and include an
unspecified-principal and an unspecified interest.

Question 24
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Which of the following best describes the impairment model prescribed by PFRS 9?
a. Incurred loss model
b. Expected credit loss model
c. Statistical credit risk model
d. Role model
ANSWER: B
Note The prescribed model of PFRS 9 is expected credit loss model while the incurred loss model is the
prescribed model under PAS 39.

Question 25
In calculating the carrying amount of loan receivable, the lender adds to the principal
I. Direct origination cost
II. Indirect origination cost
III. Origination fee charged to borrower
a. I only
b. I and II only
c. I and III only
d. I, II and III
ANSWER: A
Note Indirect origination cost is expensed and thus not included in the measurement of loan receivable.
Origination fee is deducted in the computation and not added

Question 26
Which of the following is not an objective evidence of impairment of a financial asset?
a. Significant financial difficulty of the issuer
b. A decline in the fair value of the financial asset below the previous carrying amount
c. A breach of contract, such as a default or delinquency in interest or principal payment
d. The lender, for economic or legal reason relating to the borrower's financial difficulty, grants to the
borrower a concession that the lender would not otherwise consider
ANSWER: B
Note Objective evidence of impairment may result from the following "loss events" occurring after the initial
recognition of the financial asset:
a. Significant financial difficulty of the issuer or obligor.
b. Breach of contract, such as default or delinquency in interest or principal payment.
c. Debt restructuring
The lender, for economic or legal reason relating to the borrower's financial difficulty, grants to the
borrower a concession that the lender would not otherwise consider.
d. Probability that the borrower will enter bankruptcy or other financial reorganization.
e. The disappearance of an active market for the financial asset because of financial difficulty.
f. Measurable decrease in the estimated future cash flows from a group of financial assets since the initial
recognition, although the decrease cannot yet be identified with the individual financial assets in the
group.

Question 27
I. Pledge of receivables is non-formal, thus reclassification entry is not required.
II. Assignment involves general receivables that serve as collateral for a loan obtained.
a. True, false
b. False, true
c. False, false
d. True, true
ANSWER: A
Note Assignment involves specific rather than general receivables that serve as collateral for a loan obtained.

Question 28
The practice of realizing cash from trade receivables prior to maturity date is widespread. A term which is not
associated with this practice is
a. Defalcation
b. Factoring
c. Hypothecation
d. Pledging
ANSWER: A
Note Defalcation is misappropriation of funds by a person trusted with its charge; also, the act of
misappropriation, or an instance thereof. It is not part of the receivable financing methods

Question 29
Assignments of receivables
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 a. are disclosed only
b. are recognized by debiting "Accounts receivable - assigned"
c. give rise to receivables from factor
d. b and d
ANSWER: B
Note Assignment of receivables involves a reclassification entry by debiting Accounts receivable – assigned
and crediting Accounts receivable – unassigned or simply Accounts receivable.

Question 30
A note receivable bearing a reasonable interest rate is sold to a bank with recourse. The note receivable
discounted account was appropriately credited. The note receivable discounted account should be reported as
a. Liability account for the face amount of the note
b. Contra asset account for the face amount of the note
c. Liability account for the proceeds from the discounting transaction
d. Contra asset account for the proceeds from the discounting transaction
ANSWER: B
Note Note receivable discounted account arises only when the note receivable is discounted under conditional
sale. It is presented as a contra note receivable account.

Question 31
The entry to record a note receivable discounted with a bank most likely includes
a. Debiting cash equal to the maturity value of the note
b. Crediting note receivable equal to the maturity value of the note
c. Debiting cash equal to the face amount of the note
d. Crediting note receivable equal to the face amount of the note
ANSWER: D
Note Note receivable discounted account arises only when the note receivable is discounted under conditional
sale. It is presented as a contra note receivable account. The account is measured at face value of the note
receivable.

Question 32
Which of the following transaction will result to a change in the receivable balance?
I. Pledge of receivables
II. Assignment of receivables
III. Factoring of receivables
a. I and II
b. II and III
c. I and III
d. I, II and III
e. Answer not given
ANSWER: E
Note The transaction that will result to a change in the receivable balance is factoring of receivables.
Assignment and pledge are loan transactions where receivables serve as collateral for the loan obtained and
thus do not result to derecognition of receivables on the books

Question 33
Which of the following transaction will result to derecognition of a receivable account?
I. Factoring of an accounts receivable with recourse
II. Assignment of accounts receivable
III. Discounting of notes receivable
a. I and II
b. II and III
c. I and III
d. I, II and III
e. None from I, II and III
Note None from I, II and III will result to derecognition of a receivable account. Assignment is a loan
transaction where receivables serve as collateral for the loan obtained and thus do not result to derecognition
of receivables on the books. Factoring is the sale of receivable but since it is made on a with recourse basis,
this will not result to derecognition of receivables. If the question is silent, discounting is made on a with
recourse basis and will not result to derecognition of receivables.

Question 34
After being held for 40 days, a 120-day 12% interest-bearing note receivable was discounted at a bank at 15%.
What is the formula for the proceeds received from the bank?
a. Face value less the discount at 12%
b. Face value less the discount at 15%
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 c. Maturity value less the discount at 12%
d. Maturity value less the discount at 15%
ANSWER: D
Note Net proceeds from discounting is computed as maturity value less the discount at 15%

Question 35
Which of the following is used to account for probable sales discounts, sales returns and sales allowances?
a. Due from factor
b. Recourse liability
c. Both due from factor and recourse liability
d. Neither due from factor nor recourse liability
ANSWER: A
Note
Due from factor or receivable from factor account is a receivable account which is used to account for probable
sales discounts, sales returns and sales allowances which is returned to the entity after accounting such
deductions.

Question 1
GATOTKACA COMPANY provided the following information relating to current operations:
Accounts receivable, January 1 4,000,000

Accounts receivable collected 8,400,000

Cash sales 2,000,000

Inventory, January 1 4,800,000

Inventory, December 31 4,400,000

Purchases 8,000,000

Gross margin on sales 4,200,000

What is the balance of accounts receivable on December 31?

a. 2,000,000
b. 4,200,000
c. 6,200,000
d. 8,200,000
ANSWER: C
Note
Inventory - January 1 P4,800,000
Purchases 8,000,000
Goods available for sale 12,800,000
Inventory - December 31 (4,400,000)
Cost of goods sold 8,400,000
Gross margin on sales 4,200,000
Gross sales 12,600,000
Cash sales (2,000,000)
Credit sales 10,600,000'
Accounts receivable – January 1 4,000,000
Accounts receivable collected (8,400,000)
Accounts receivable – December 31 P6,200,000

Question 2
HILDA INC. provided the following data for the year ended December 31, 2014:
Sales on account 3,600,000

Notes received to settle accounts 400,000

Provision for doubtful accounts 90,000

Accounts receivable determined to be worthless 25,000

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 Purchases on account 3,900,000

Payments to creditors 3,200,000

Discounts allowed by creditors 260,000

Merchandise returned by customer 15,000

Collections received to settle accounts 2,450,000

Notes given to creditors in settlement of accounts 250,000

Merchandise returned to suppliers 70,000

Payments on notes payable 100,000

Discounts taken by customers 40,000

Collections received in settlement of notes 180,000

What is the net realizable value of accounts receivable on December 31, 2014?
a. 605,000
b. 670,000
c. 825,000
d. 890,000
ANSWER: A
Note
Sales on account P3,600,000
Notes received to settle accounts (400,000)
Accounts determined to be worthless (25,000)
Merchandise returned by customer (15,000)
Collections received to settle accounts (2,450,000)
Discounts taken by customers (40,000)
Accounts receivable - ending balance 670,000
Allowance for doubtful accounts (90,000-25,000) (65,000)
Net realizable value P605,000

Question 3
The following information pertains to Entity HYLOS
Dividend receivable 40,000

Income Tax refunds receivable 30,000

Due from customers on sales on account (net of P10,000 credit balances) 120,000

Subscription Receivable on the entity’s shares 6,000

Advances to employees 10,000

Due from customers on sales in exchange for promissory notes 40,000

Compute for the total current receivables

a. 250,000
b. 160,000
c. 240,000
d. 210,000
ANSWER: A
Note
Dividend receivable P40,000
Income Tax refunds receivable 30,000
Due from customers on sales on account (P120,000 + P10,000) 130,000
Advances to employees 10,000
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Due from customers on sales in exchange for promissory notes 40,000
Total current receivables P250,000

Question 4
On January 1, 2014, the statement of financial position of KHUFRA CORP. showed accounts receivable of
P450,000 and allowance for doubtful accounts of P9,000. During the current year, the transactions were:
• Sales on account, P4,800,000.
• Cash collections of accounts receivable totaled P3,920,000, after discounts of P80,000 were allowed
for prompt payment.
• Bad accounts previously written off in prior year amounting to P5,000 were recovered.
• The entity decided to provide P26,000 for doubtful accounts at the end of the year.
• Accounts receivable of P700,000 have been pledged to a local bank on a loan of P400,000. Collections
of P150,000 were made on such accounts receivable (not included in the collections previously given).
What is the net realizable value of accounts receivable on December 31, 2014?
a. 1,060,000
b. 1,065,000
c. 1,070,000
d. 1,074,000
ANSWER: A
Note
Accounts receivable - January 1 P450,000 Allowance for doubtful accounts -
P9,000
Sales on account 4,800,000 January 1
Collections (3,920,000) Provision for doubtful accounts 26,000
Sales discounts (80,000) Recovery of accounts written off 5,000
Collections of pledged accounts (150,000) Allowance balance - December 31 P40,000
Accounts receivable - December 31 P1,100,000
NRV of AR (P1,100,000 – P40,000) P1,060,000

Question 5
The following information was available in relation to the accounts receivable balance of LOLITA CORP. for the
year ended December 31, 2017:
• At the start of the year, which is January 1, the accounts receivable balance was P430,000 before
allowances.
• Sales for the year is P800,000 of which 25% pertains to cash sales.
• Cash collections during the year amounted to P550,000 including the cash sales and recovery of
previously written off account.
• The company wrote off accounts receivable amounting to P55,000 but collected P5,000 from it
subsequently.
• Immediately after it sales during the year, the company estimated that P20,000 of sales discounts will
be granted to its customers. The sales discount account has a balance of P50,000 for the year ended.
• Sales returns during the year is P30,000 of which 60% pertains to cash sales.
• Allowance for doubtful accounts has a beginning balance of P90,000, doubtful accounts expense for
the year is P45,000.
What is the gross balance of accounts receivable at the end of the year?
a. 600,000
b. 588,000
c. 540,000
d. 558,000
ANSWER: B
Note
Beginning balance of AR P430,000
Credit sales (P800,000 x 75%) 600,000
Collections on credit sales (P550,000 – P200,000 – P5,000) (345,000)
Write-off (55,000)
Sales discounts (P50,000 – P20,000) (30,000)
Sales returns (P30,000 x 40%) (12,000)
Ending balance of AR P588,000

Question 6
The following information was available in relation to the accounts receivable balance of LOLITA CORP. for the
year ended December 31, 2017:
• At the start of the year, which is January 1, the accounts receivable balance was P430,000 before
allowances.
• Sales for the year is P800,000 of which 25% pertains to cash sales.

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 • Cash collections during the year amounted to P550,000 including the cash sales and recovery of
previously written off account.
• The company wrote off accounts receivable amounting to P55,000 but collected P5,000 from it
subsequently.
• Immediately after it sales during the year, the company estimated that P20,000 of sales discounts will
be granted to its customers. The sales discount account has a balance of P50,000 for the year ended.
• Sales returns during the year is P30,000 of which 60% pertains to cash sales.
• Allowance for doubtful accounts has a beginning balance of P90,000, doubtful accounts expense for
the year is P45,000.

What is the net realizable value of accounts receivable to be presented on the statement of financial
position at the end of the period?
a. 483,000
b. 473,000
c. 503,000
d. 515,000
ANSWER: A
Note
Beginning balance of ADA P90,000
Doubtful accounts expense 45,000
Recovery 5,000
Write-off (55,000)
Ending balance of ADA P85,000

Gross ending balance of AR P588,000

Ending balance of ADA (85,000)
Allowance for sales discounts (20,000)
NRV of AR P483,000

Question 7
On December 31, 2014, MINOTAUR CORP. reported that the current receivables consisted of the following:
Trade accounts receivable 930,000

Allowance for uncollectible accounts (20,000)

Claim against shipper for goods lost in transit (November 2014) 30,000

Selling price of unsold goods sent by

Miami on consignment at 130% of cost

(not included in Miami's ending inventory) 260,000

Security deposit on lease of warehouse used for storing some inventories 300,000

Total 1,500,000

On December 31, 2014, what total amount should be reported as trade and other receivables under current
assets?
a. 940,000
b. 1,200,000
c. 1,240,000
d. 1,500,000
ANSWER: A
Note
Trade accounts receivable P930,000
Allowance for uncollectible accounts (20,000)
Claim receivable 30,000
Total trade and other receivables P940,000
The selling price of goods on consignment is excluded from accounts receivable because the goods are still
unsold. The cost of the consigned goods of P200,000 (260,000 /130%) should be included in inventory. The
security deposit is a noncurrent receivable.

Page 12 of 23
Question 8
TIGREAL CORP. provided the following data for the current year:
Allowance for doubtful accounts - January 1 180,000

Sales 9,500,000

Sales returns and allowances 800,000

Sales discounts 200,000

Accounts written off as uncollectible 200,000

The entity provided for doubtful accounts expense at the rate of 3% of net sales. What is the allowance for
doubtful accounts at year-end?
a. 235,000
b. 241,000
c. 265,000
d. 435,000
ANSWER: A
Note
Allowance for doubtful accounts - January 1 P180,000
Doubtful accounts expense (9,500,000-800,000-200,000 x 3%) 255,000
Accounts written off (200,000)
Allowance for doubtful accounts - December 31 P235,000

Question 9
URANUS COMPANY used the allowance method of accounting for bad debts. The following summary
schedule was prepared from an aging of accounts receivable outstanding on December 31 of the current year:
Number of days Probability

outstanding Amount of collection

0-30 days 5,000,000 .98

31 -60 days 2,000,000 .90

Over 60 days 1,000,000 .80

The following additional information is available for the current year:
Net credit sales for the year 40,000,000

Allowance for doubtful accounts:

Balance, January 1 450,000 (cr)

Balance before adjustment, December 31 20,000 (dr)

The entity based the estimate of doubtful accounts on the aging of accounts receivable. What amount should
be recognized as doubtful accounts expense for the current year?
a. 470,000
b. 480,000
c. 500,000
d. 520,000
ANSWER: D
Note
0-30 days (5,000,000 x 2%) P100,000
31 - 60 days (2,000,000 x 10%) 200,000
Over 60 days (1,000,000 x 20%) 200,000
Required allowance - December 31 500,000
Add: Debit balance in allowance 20,000
Doubtful accounts expense P520,000

Question 10
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ALDOUS CORP. prepared the following schedule on December 31, 2014 and the uncollectible accounts
experience for the previous five years.
0-30 days 4,500,000

31-60 days 1,500,000

61-90 days 800,000

91-120 days 200,000

Over 120 days 100,000

7,100,000

Year-end 0-30 31-60 61-90 91-120 Over

Year receivables days days days days 120 days

2013 7,800,000 3% 9% 17.4% 52.1% 84.1%

2012 7,500,000 5 8 18.0 49.2 80.3

2011 6,800,000 4 11 19.0 53.7 82.0

2010 6,900,000' 4 10 19.8 51.3 78.5

2009 7,200,000 2 11 17.8 49.9 85.2

The unadjusted allowance for bad debts on December 31, 2014 is P300,000. What is the correct balance of
the allowance for bad debts based on the average loss experience for the last 5 years? The average rate is
determined by adding all the rates for each category divided by 5.
a. 300,000
b. 340,700
c. 597,500
d. 640,700
ANSWER: D
Note
Amount Average rate Required allowance
0-30 days P4,500,000 3.60% P162,000
31-60 days 1,500,000 9.80% 147,000
61-90 days 800,000 18.40% 147,200
91-120 days 200,000 51.24% 102,480
Over 120 days 100,000 82.02% 82,020
P 7,100,000 P640,700

Question 11
ALUCARD CORP. is located in Quezon but does business throughout Metro Manila. The company builds and
sells equipment used in manufacturing pharmaceuticals. On December 31, 2014, ALUCARD's accounts
receivable are as follows:
Individually significant receivables

A Company P320,000

B Company. 800,000

C Company. 480,000

D Company 400,000

All other receivables 2,000,000

Page 14 of 23
 Total P4,000,000
ALUCARD CORP. determines that A Company's receivable is impaired by P160,000 and D Company's
receivable is totally impaired. The other receivables from B and C are not considered impaired. ALUCARD
determines that a composite rate of 2% is appropriate to measure impairment on all other receivables.

What is the total impairment of receivables for ALUCARD CORP. for 2014?
a. P494,600
b. P560,000
c. P600,000
d. P625,600
ANSWER: D
Note
D Company P400,000
A Company 160,000
Other receivables P3,280,000 x 2% 65,600
Total impairment loss P625,600

Question 12
The following data were taken from the records of ARGUS CORP. for the year ended December 31, 2015:
Sales on account, P7,200,000; Account receivables written off as a result of permanent impairment, P50,000;
Notes receivable to settle accounts, P800,000; Purchases on account, P7,800,000; Payments to creditors,
P6,400,000; Purchase discounts, P520,000; Sales returns, P30,000; Collections received to settle accounts,
P4,900,000; Notes given to settle accounts, P500,000; Purchase returns, P140,000; Payments of notes,
P200,000; Discounts taken by customers, P80,000; Collection on notes receivable, P360,000.
What is the carrying value of the accounts receivable on December 31, 2015?
a. P1,210,000
b. P1,340,000
c. P1,650,000
d. P1,780,000
ANSWER: B
Note
Sales P7,200,000
Collection (4,900,000)
Sales discount (80,000)
Accounts written-off (50,000)
Notes receivable in settlement of acct. (800,000)
Sales returns (30,000)
Accounts receivable, December 31, 2015 P1,340,000

Question 13
BADANG COMPANY showed the following information related to the accounts receivable in order to estimate
bad debts through the use of the aging. The credit period of the company is 30 days on the average.
Age of Receivables Amount

Under 30 days P 4,000,000

31-60 days 1,500,000

61 - 90 days 1,000,000

91 -120 days 500,000

121 -150 days 200,000

151-180 days 100,000

The company based on experience has the following percent of collectability:

Accounts which are overdue for less than 30 days 97 %

Accounts which are overdue 31 - 60 days 90 %

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 Accounts which are overdue 61 - 90 days 75 %

Accounts which are overdue 91 -120 days 55 %

Accounts which are overdue 121 -150 days 30 %

Accounts which are overdue for over 150 days 25 %

What is the carrying value of accounts receivable for balance sheet reporting purposes?
a. P430,000
b. P960,000
c. P6,340,000
d. P6,870,000
ANSWER: D
Note
Gross % of Collectibilitv Amount collectible
P4,000,000 X 100% P4,000,000
1,500,000 X 97% 1,455,000
1,000,000 X 90% 900,000
500,000 X 75% 375,000
200,000 X 55% 110,000
100,000 X 30% 30,000
P7,300,000 P6,870,000

Question 14
On June 1, 2015, BANE CORP. sold merchandise with a list price of P300,000 to CHOU INC. on account.
CHOU was given the following trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale
was made F.O.B. point of destination. On June 10, 2015, when the merchandise were delivered, CHOU paid
P5,000 of delivery costs for BANE as an accommodation.

What amount should CHOU remit to BANE as full payment on June 14, 2015?
a. P168,000
b. P164,640
c. P159,740
d. P159,640
ANSWER: D
Note
Invoice price (P300,000 x 70% x 80%) P168,000
Less: Cash discount (P168,000 x 2%) 3,360
Net P164,640
Less: Freight cost -reimbursable against the seller 5,000
Remittance P159,640

Question 15
DYRROTH CORP. started operations during the period. DYRROTH uses allowance method of accounting for
bad debts. The following summary schedule was prepared from an aging of accounts receivable outstanding
on December 31 of the current year.
No. of Days Probability

Outstanding Amount of Collection

0-30 days P500,000 .98

31-60 days 200,000 90

Over 60 days 100,000 .80

The following additional information is available for the current year:
• Accounts deemed worthless P5,000
• Accounts recovered 2,000
What is the recoverable historical cost of accounts receivable at year-end?
• P750,000
• P800,000
• P747,000
Page 16 of 23
 • P745,000
ANSWER: A
Note
Gross accounts receivable (500K + 200K + 100K) 800,000
Less: Allowance for bad debts* (50,000)
Accounts receivable, net – end. 750,000

No. of Days Probability Required

Uncollectabilit
Outstanding Amount of Collection Allowance
y
0-30 days 500,000 0.98 0.02 10,000
31-60 days 200,000 0.9 0.1 20,000
Over 60
100,000 0.8 0.2 20,000
days
50,000*

Question 16
At the beginning of the period, the balances of FREYA CORP.’s accounts receivable and allowance for doubtful
accounts were P150,000 and P12,000, respectively. During the period, FREYA. made total sales of
P1,000,000, 40% of which were cash sales. FREYA wrote-off accounts of P9,000 and recovered P2,000. Bad
debts expense recognized during the period was P15,000. Total collections on account sales during the period
amounted to P410,000, including recoveries.
What is the carrying amount of accounts receivable in FREYA CORP.'s end-of-period financial statements?
a. P313,000
b. P353,000
c. P300,000
d. None from the choices
ANSWER: A
Note
Beginning balance of AR P150,000
Credit sales (P1,000,000 x 60%) 600,000
Collections on credit sales (P410,000 –
(408,000)
P2,000)
Write-off (9,000)
Ending balance of AR P333,000

Beginning balance of ADA P12,000

Bad debts expense 15,000
Recovery 2,000
Write-off (9,000)
Ending balance of ADA P20,000
NRV of AR (P333,000 – P20,000) P313,000

Question 17
On June 30, 2014, GUINEVERE CORP. sold goods for P5,000,000 and accepted the customer's 10% one-
year note in exchange. The 10% interest rate approximates the market rate of return. What amount should be
reported as interest income for the year ended December 31, 2014?
a. 0
b. 125,000
c. 250,000
d. 500,000
ANSWER: C
Note Interest income from July 1 to Dec. 31, 2014 (10% x 5,000,000 x 6/12) P250,000

Question 18
On April 1, 2017 JAWHEAD CORP. sold one of its machinery costing P150,000 and with an accumulated
depreciation of P45,000 to KAJA CORP. for a price of 210,000. The agreed terms of payment is that P10,000
serves as downpayment and the remaining balance was evidenced by a non-interest bearing notes receivable
that will mature 4 years from the date of sale. On the date of transaction the prevailing market rate of interest
for this type of note is 12%.

Page 17 of 23
What total amount should be presented in the Statement of Comprehensive Income for the year ended
December 31, 2017 in relation to the notes receivable of JAWHEAD CORP.?
a. 22,104
b. 32,104
c. 47,356
d. 43,543
ANSWER: D
Note
PV of notes receivable (P200,000 x
P127,100
0.6355)
Cash down payment 10,000
Selling price 137,100
Carrying amount (P150,000 – P45,000) (105,000)
Gain on sale 32,100
Interest income (P127,100 x 12% x 9/12) 11,439
Net amount P43,539

Question 19
On April 1, 2017 JAWHEAD CORP. sold one of its machinery costing P150,000 and with an accumulated
depreciation of P45,000 to KAJA CORP. for a price of 210,000. The agreed terms of payment is that P10,000
serves as downpayment and the remaining balance was evidenced by a non-interest bearing notes receivable
that will mature 4 years from the date of sale. On the date of transaction the prevailing market rate of interest
for this type of note is 12%.
Assuming that the notes receivable is payable in 4 equal annual instalment, what amount is presented as
notes receivable in the statement of financial position for the year ended December 31, 2018?
a. 84,503
b. 130,900
c. 120,092
d. None of the above
Note
PV of notes receivable: Initial measurement (P50,000 x 3.0373) P151,865
Interest income: April 1, 2017- April 1, 2018 (P151,865 x 12%) 18,223
Principal repayment (200K4) (50,000)
Carrying amount: April 1, 2018 120,088
Interest income April 1, 2018 – December 31, 2018 (120,088*12%
10,808
*9/12)
Carrying amount: December 31, 2018 130,896

Question 20
On March 30, 2017, LAPU-LAPU CORP. sold an equipment with a carrying amount of P1,200,00 in exchange
for P150,000 cash and promissory note amounting to P1,500,000 bearing an interest of 10% per annum and
will mature on March 30, 2020.
On this date, the market rate of interest is 15% for the similar notes transacted.
If both the principal and interest will be paid on maturity date, what is the net amount to be presented in the
Statement of Comprehensive Income for the year ended 2017?
a. 232,125
b. 424,443
c. 376,364
d. 226,364
ANSWER: C
Note
PV of principal (P1,500,000 x 0.6575) P986,250
PV of nominal interest (P150,000 x 3 x 0.6575) 295,875
PV of note receivable 1,282,125
Cash downpayment 150,000
Selling price 1,432,125
Carrying amount (1,200,000)
Gain on sale 232,125
Interest income 2017 (P1,282,125 x 15% x 9/12) 144,239
Net amount presented in profit or loss P376,364

Question 21
Page 18 of 23
On March 30, 2017, LAPU-LAPU CORP. sold an equipment with a carrying amount of P1,200,00 in exchange
for P150,000 cash and promissory note amounting to P1,500,000 bearing an interest of 10% per annum and
will mature on March 30, 2020.
On this date, the market rate of interest is 15% for the similar notes transacted.
If the principal is payable in equal annual instalments and the interest is payable at maturity, what is the net
amount to be presented in the Statement of Comprehensive Income for the year ended 2017?
a. 288,850
b. 289,471
c. 489,678
d. 439,471
ANSWER: D
Note
PV of principal (P500,000 x 2.2832) P1,141,600
PV of nominal interest [(P150,000 + P100,000 + P50,000) x 0.6575) 197,250
PV of note receivable 1,338,850
Cash downpayment 150,000
Selling price 1,488,850
Carrying amount (1,200,000)
Gain on sale 288,850
Interest income 2017 (P1,338,850 x 15% x 9/12) 150,206
Net amount presented in profit or loss P439,471

Question 22
MARTIS CORP. sold an equipment with a carrying amount of P800,000, receiving a noninterest-bearing note
due in three years with a face amount of P1,000,000. There is no established market value for the equipment.
The interest rate on similar obligations is estimated at 12%. The present value of 1 at 12% for three periods is
.712.

What amount should be reported as gain or loss on the sale and interest income for the first year?
a. Gain (loss) - 88,000 ; Interest income - 85,000
b. Gain (loss) - 88,000 ; Interest income -120,000
c. Gain (loss) - 200,000 ; Interest income - 96,000
d. Gain (loss) - 200,000 ; Interest income - 288,000
ANSWER: A
Note
Present value of note receivable (1,000,000 x .712) P712,000
Carrying amount of equipment 800,000
Loss on sale (88,000)
Interest income for first year (12% x 712,000) P85,440

Question 23
On January 1, 2014, MINSITTHAR CORP. reported the following balances:
Note receivable from sale of building 7,500,000

Note receivable from an officer 2,000,000

The P7,500,000 note receivable is dated May 1, 2013, bears interest at 9%. Principal payments of P2,500,000
plus interest are due annually beginning May 1, 2014. The P2,000,000 note receivable is dated December
31,2011, bears interest at 8%, and is due on December 31,2016. Interest is payable annually on December 31,
and all interest payments were made through December 31,2014. On July 1, 2014, MINSITTHAR sold a
parcel of land to ROGER CORP. for P4,000,000 under an installment sale contract. ROGER made a
P1,200,000 cash down payment on July 1,2014, and signed a 4-year 10% note for the P2,800,000 balance.
The equal annual payments of principal and interest on the note totaled P880,000, payable on July 1 of each
year from 2015 through 2018.
What is the total amount of notes receivable including accrued interest that should be classified as current
assets on December 31, 2014?
a. 2,940,000
b. 3,080,000
c. 3,540,000
d. 3,820,000
ANSWER: C
Note
Note receivable from sale of building due 5/1/2015 P2,500,000
Accrued interest on note receivable from sale of building from
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 5/1/2014 to 12/31/2014 (5,000,000 x 9% x 8/12) 300,000
Principal payment of note receivable from sale of land due on
7/1/2015:
Annual installment 880,000
Interest from 7/1/2014 to 7/1/2015 (10% x 2,800,000) (280,000) 600,000
Accrued interest on NR from sale of land from
7/1/2014 to 12/31/2014(1/2x280,000) 140,000
Total current receivables - December 31, 2014 P3,540,000

Question 24
On January 1, 2014, MINSITTHAR CORP. reported the following balances:
Note receivable from sale of building 7,500,000

Note receivable from an officer 2,000,000

The P7,500,000 note receivable is dated May 1, 2013, bears interest at 9%. Principal payments of P2,500,000
plus interest are due annually beginning May 1, 2014. The P2,000,000 note receivable is dated December
31,2011, bears interest at 8%, and is due on December 31,2016. Interest is payable annually on December 31,
and all interest payments were made through December 31,2014. On July 1, 2014, MINSITTHAR sold a
parcel of land to ROGER CORP. for P4,000,000 under an installment sale contract. ROGER made a
P1,200,000 cash down payment on July 1,2014, and signed a 4-year 10% note for the P2,800,000 balance.
The equal annual payments of principal and interest on the note totaled P880,000, payable on July 1 of each
year from 2015 through 2018.
What is the total amount of notes receivable that should be classified as noncurrent assets on December 31,
2014?
a. 4,500,000
b. 6,420,000
c. 6,700,000
d. 7,300,000
ANSWER: C

Note
NR from sale of building due May 1, 2016 2,500,000
NR from officer due December 31, 2016 2,000,000
NR from sale of land - noncurrent portion:
Principal 2,800,000
Due July 1, 2015 - current portion (600,000) 2,200,000
Total noncurrent notes receivable - December 31, 2014 6,700,000

Question 25
On December 1, 2014, RUBY CORP. gave SUN CORP. a P200,000, 12% loan. RUBY paid proceeds of
P194,000 after the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest are due in
sixty monthly installments of P4,450, beginning January 1, 2015. The repayments yield an effective interest
rate of 12% at a present value of P200,000 and 13.4% at a present value of P194,000.

What amount of interest income should be reported in 2014?

a. 1,940
b. 2,000
c. 2,166
d. 2,233
ANSWER: C
Note Interest income for 2014 (194,000 x 13.4% x 1/12) P2,166

Question 26
On December 1, 2014, RUBY CORP. gave SUN CORP. a P200,000, 12% loan. RUBY paid proceeds of
P194,000 after the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest are due in
sixty monthly installments of P4,450, beginning January 1, 2015. The repayments yield an effective interest
rate of 12% at a present value of P200,000 and 13.4% at a present value of P194,000.

What amount should be reported as accrued interest receivable on December 31, 2014?
a. 0
b. 2,000
c. 4,450
Page 20 of 23
 d. 6,000
ANSWER: B
Note Accrued interest receivable (200,000 x 12% x 1/12) P2,000

On January 1, 2018, THAMUZ BANK granted a 12%, P2,000,000 bank loan to TERIZLA INC. The bank
incurred direct origination cost of P35,678 and charged a P152,190 non-refundable origination fee. The
principal will mature 4 years after, which is December 31, 2021 but interest is payable every December 31.

What is the interest income for the year 2018?

a. 263,688
b. 240,000
c. 280,000
d. 226,019
ANSWER: A
Note
Face value P2,000,000
Direct origination costs 35,678
Origination fee (152,190)
Initial measurement P1,883,488
NOTE: Through interpolation, the effective interest rate is 14%.
Interest income (P1,883,488 x 14%) P263,688

Question 28
On January 1, 2018, THAMUZ BANK granted a 12%, P2,000,000 bank loan to TERIZLA INC. The bank
incurred direct origination cost of P35,678 and charged a P152,190 non-refundable origination fee. The
principal will mature 4 years after, which is December 31, 2021 but interest is payable every December 31.

What is the carrying amount of the loan on December 31, 2018?

a. 1,883,488
b. 1,907,176
c. 1,869,507
d. 1,923,488
ANSWER: B
Note
Initial measurement P1,883,488
Interest income 263,688
Interest receivable (240,000)
Carrying amount 12/31/2018 P1,907,176

Question 29
On January 1, 2014, ZILONG BANK made a P1,000,000, 8% loan. The P80,000 interest is receivable at the
end of each year, with the principal amount to be received at the end of five years. At the end of 2014, the first
year's interest of P80,000 has not yet been received because the borrower is experiencing financial difficulties.
The borrower negotiated a restructuring of the loan. The payment of all of the interest for 5 years will be
delayed until the end of the 5-year loan term. In addition, the amount of principal repayment will be dropped
from P1,000,000 to P500,000. The PV of 1 at 8% for 4 periods is .735. No interest revenue has been
recognized in 2014 in connection with the loan.

What is the loan impairment loss on December 31, 2014?

a. 238,500
b. 288,000
c. 338,500
d. 388,000
ANSWER: C
Note
Present value of principal (500,000 x .735) P367,500
Present value of interest (80,000 x 5 = 400,000 x .735) 294,000
Total present value of loan P661,500

Loan receivable P1,000,000

Present value of loan 661,500
Loan impairment loss P338,500

Page 21 of 23
Question 30
On January 1, 2014, ZILONG BANK made a P1,000,000, 8% loan. The P80,000 interest is receivable at the
end of each year, with the principal amount to be received at the end of five years. At the end of 2014, the first
year's interest of P80,000 has not yet been received because the borrower is experiencing financial difficulties.
The borrower negotiated a restructuring of the loan. The payment of all of the interest for 5 years will be
delayed until the end of the 5-year loan term. In addition, the amount of principal repayment will be dropped
from P1,000,000 to P500,000. The PV of 1 at 8% for 4 periods is .735. No interest revenue has been
recognized in 2014 in connection with the loan.

What is the interest income for 2015?

a. 0
b. 48,960
c. 52,920
d. 80,000
ANSWER: C
Note Interest income for 2015 (8% x 661,500) P52,920

Question 31
X.BORG COMPANY factored P4,000,000 of accounts receivable without guarantee for a finance charge of
5%. The finance entity retained an amount equal to 10% of the accounts receivable for possible adjustments.

What amount should be recorded as gain or loss on the transfer of accounts receivable?
a. 200,000 gain
b. 200,000 loss
c. 600,000 gain
d. 600,000 loss
ANSWER: B
Note Loss on factoring - equal to finance fee (5% x 4,000,000) P200,000

Question 32
On August 31, 2014, FANNY CORP. discounted with recourse a note at the bank at discount rate of 15%. The
note was received from the customer on August 1, 2014, is for 90 days, has a face value of P5,000,000, and
carries an interest rate of 12%. The customer paid the note to the bank on October 30, 2013, the date of
maturity.

If the discounting is accounted for as a secured borrowing, what is the interest expense to be recognized on
August 31, 2014?
a. 21,250
b. 25,000
c. 28,750
d. 50,000
ANSWER: C
Note
Principal 5,000,000
Interest (5,000,000 x 12% x 90/360) 150,000
Maturity value 5,150,000
Discount (5,150,000 x 15% x 60/360) (128,750)
Net proceeds 5,021,250

Principal 5,000,000
Accrued interest receivable (5,000,000 x 12% x 30/360) 50,000
Carrying amount of note receivable 5,050,000

Net proceeds 5,021,250

Carrying amount of note receivable (5,050,000)
Interest expense (28,750)

Question 33
On October 31, 2015, GUSION CORP. engaged in the following transactions:
Obtained a P500,000, six-month loan from UCP BANK, discounted at 12%. The company pledged P500,000 of
accounts receivable as security for the loan. Factored P1,000,000 of accounts receivable without recourse on
a non-notification basis with PCU INC. PCU charged a factoring fee of 2% of the amount of receivables
factored and withheld 10% of the amount factored.

What is the total cash received from the financing of receivables?

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 a. P1,320,000
b. P1,350,000
c. P1,380,000
d. P1,470,000
ANSWER: B
Note
Pledging [P500,000 - (P500,000 x 12% x 6/12)] P470,000
Factoring [P1,000,000 (100% - 2% -10%)] 880,000
Total proceeds P1,350,000

Question 34
HANZO COMPANY accepted a P200,000, 90-day, 12% interest bearing note dated November 15, 2015 from a
customer. On December 15, 2015, HANZO discounted the note at HAYABUSA BANK at 15% discount rate.
HANZO Company informed the maker of the note regarding the discounting arrangement. On maturity date,
the maker of the note did not pay the note and as a result HAYABUSA charged HANZO for the total amount
due plus P2,000 protest fee.

How much should HANZO COMPANY pay to HAYABUSA BANK, when the maker fails to pay the note upon its
maturity?
a. None
b. P202,000
c. P206,000
d. P208,000
ANSWER: D
Note
If the notes were discounted and were dishonored at maturity, the transferor recognizes no amount of liability
and pays nothing to the financial institution when the discounting is without recourse, because the discounting
is deemed sale However, if the discounting is with recourse (deemed borrowings), the transferor recognizes an
accounting liability and pays the financial institution the maturity value plus any amount charged as protest fee.
The total amount due or payable or already paid to the financial institution is being charged back by the
transferor against the maker.

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