Answer Key To Related Multiple Choice Theory Questions:: D. None of These

ANSWER KEY TO RELATED MULTIPLE CHOICE THEORY QUESTIONS:
In relation to the above, answer the following multiple-choice questions. Write your answer on the space provided before each number. Use only CAPITAL
LETTERS.
D 1. The category "trade receivables" includes

A. advances to offices and emloyees
B. income tax refunds receivable
C. claims against insurance companies for casualties sustained
D. none of these
D 2. Which of the following should be recorded in Accounts Receivable?

A. Receivables from officers
B. Receivables from subsidiaries
C. Dividends receivable
D. None of these
D 3. Which of the following elements is not a consideration in determining the classification of receivables as to current or noncurrent?
A. Nature of receivables
B. Source or origin of receivables
C. Expected timing of cash flows
D. Amount of receivables
A 4. Credit balances in accounts receivable arising from customer's advances should be classified as
A. Current liabilities
B. Long-term liabilities
C. Part of accounts payable
Deduction from accounts
D. receivable
D 5. Which of the following would be considered part of the category "trade receivables"?
A. Advaces to employees
B. Income tax refunds receivable
D. Amounts due from customers
D 6. Which of the following receivables is nontrade?
A. Share subscription receivable
B. Tax refunds
C. Claims againts creditors for damaged goods
D. All of the above
D 7. Which of the following transactions is not a common source of receivables?

A. Sales of merchandise
B. Amount lent to others
C. Performance of service
D. Casualty damage, not covered by insurance
C 8. Long-term receivables from subsidiaries and affiliates should be classified as

A. Current assets
B. Noncurrent assets
C. Either as current or noncurrent depending on the expectation of realizing them within one year or over one year
Partly current and partly
D. noncurrent
C 9. Which of the following is normally reported as current asset?

A. Advances to subsidiaries
B. Deposit with utility companies
C. Customers' deposit
D. Subscription receivables
A 10.
Where operating cycle exends beyond one year because of long credit terms as in the case of installment sales of household appliances:
A.
It is proper to classify the entire receivables as current assets with disclosure of the amount not realizable within one year, if material.
B. The entire receivables are shown as noncurrent assets.
C. The portion due in one year is shown as current and the balance as noncurrent.
D. The receivable are not recognized.
D 10. Trade receivables are classified as current assets if they are reasonably expectedto be collected
A. within one year
B. within the normaloperating cycle
C. within one year or within the operating cycle, whichever is shorter
D. within one year or within the operating cycle, whichever is longer
D 11. The category "trade receivables" includes

advances to officers and
A. employees
B. income tax refunds receivable
C. claims against insurance companies for casualties sustained
D. open accounts resulting from short-term credit extension to the customers
D 12. Which of the following should be recorded in accounts receivable?

A. Receivables from officers
B. Receivables from subsidiaries
D. Customer's open account
ANSWER KEY TO SITUATION 2

(Adapted from Applied Auditing Textbook)
On January 13, 2022, Kingsley Corporation sold goods on credit with a selling price of P 300,000 with terms of
2/10, n/30. Freight costs amounted to P 5,000. The goods were received by the buyer on January 15, 2022.
Kingsley Corporation collected the receivable on January 23, 2022.
1. How much net cash did Kingsley Corporation receive from the buyer if the terms are FOB destination, freight
prepaid?
A. P 289,000
B. P 294,000
C. P 299,000
D. P 305,000
SOLUTION:
Under FOB destination, it is the seller who is responsible to pay and record the freight cost.
Under freight prepaid, it is the seller who is paying the freight cost.
Under this situation (1), it is the seller who paid the freight cost which is the right thing to do.
Therefore, the only collection from the buyer on January 23, 2022 is P 294,000 (P 300,000 x 98%).
2. How much net cash did Kingsley Corporation receive from the buyer if the terms are FOB destination, freight
collect?
A. P 289,000
B. P 294,000
C. P 299,000
D. P 305,000
SOLUTION:
Under FOB destination, it is the seller who is responsible to pay and record the freight cost.
Under freight collect, it is the buyer who is paying the freight cost.
Under this situation (2), the seller has payable to the buyer regarding freight cost.
Therefore, the collection from the buyer on January 23, 2022 is P 289,000 [(P 300,000 x 98%).- P 5,000]
C 1. Net realiazable means

A. sales discounts
B. allowance for doubtful accounts
C. allowance for doubtful accfounts and other special valuation allowance
D. special valuation allowance
B 2. Which method of estimating bad debts loss is not consistent with accrual accounting?
A. Allowance method
B. Direct write-off method
C. Percent of sales method
D. Percent of accounts receivable method
B 3. Which method of recording bad debt loss is not consistent with accrual accounting?
A. Allowance method
B. Direct write-off method
C. Percent of sales method
D. Percent of accounts receivable method
A 4. A method of estimating uncollectible accounts that emphasize asset valuation rather than income
measurement is the allowance method based on:
A. Aging the receivables
B. Direct write-off
C. Gross sales
D. Credit sales less returns and allowances
C 5. A method of estimating bad debts that focuses on the income statement rather than the statement of
financial position is the allowance method based on
A. Direct write-off
B. Aging the accounts receivable
C. Credit sales
D. The balance in the trade receivable accounts.
B 6. When allowance method of recognizing bad debt expense is used, the entries at the time of collection of a
small account previously written off would
A. increase net income
B. have n effect on total assets
C. increase working capital
D. decrease total current liablities
D 7. When allowance method of recognizing bad debt expense is used, the allowance for doubtful accounts
would decrease when
A. specific accounts receivable is collected
B. accounts previously wriiten off is collected
C. accounts previously wriiten off becomes collectible
D. specific uncollectible account is written off
A 8. A method of estimating uncollectible accounts that emphasizes asset avaluation rather than income
measurement is the allowance method based on
A. aging the receivables
B. direct write-off
C. gross sales
D. credit sales less returns and allowances
B 9. Which method of recording uncollectible accounts expense is consistent with accrual accounting?
A. Allowance method - YES; Direct write-off method - YES
B. Allowance method - YES; Direct write-off method - NO
C. Allowance method - NO; Direct write-off method - YES
D. Allowance method - NO; Direct write-off method - NO
A 10. When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off
of a scientific account
A. decreases both accounts receivable and the allowance for uncollectible accounts
B. decreases accounts receivable and increases the allowance for uncollectible accounts
C. increases the allowance for uncollectible accounts and decreases net income
D. decreases both accounts receivable and net income
C 11. A company uses the allowance method to recognize uncollectible account expense. What is the effect at the
time of the collection of an account previously written off on each of the following accounts?
A. Allowance for Uncollectible Accounts - NO EFFECT; Uncollectible Accounts Expense - DECREASE
B. Allowance for Uncollectible Accounts - INCREASE; Uncollectible Accounts Expense - DECREASE
C. Allowance for Uncollectible Accounts - INCREASE; Uncollectible Accounts Expense - NO EFFECT
D. Allowance for Uncollectible Accounts - NO EFFECT; Uncollectible Accounts Expense - NO EFFECT
A 12. Which of the following is/are correct pertaining to direct write-off method of recording uncollectibles?
A.
The uncollectible account is recorded by debiting bad debt expense and crediting accounts receivable.
B. This method is in accordance with the matching principle.
C. This method is not acceptable for tax computation purposes.
D. All of the given statements are correct.
B 13. Which of the following is correct when an account receivable is written off?
Accounting Element Affected Allowance Method Direct write-off Method
A. Income Decrease Increase
B. Loss None Increase
C. Income None None
D. Loss Increase none
ANSWER KEY TO RELATED MULTIPLE CHOICE THEORY QUESTIONS:

In relation to the above, answer the following multiple-choice questions. Write your answer on the space provided before
each number. Use only CAPITAL LETTERS.
A 1. A method of estimating bad debts allowance based on the total accounts receivable on the statement
of financial position date.
A. Composite rate method
B. Aging of accounts receivable
C. Required allowance method
D. Credit sales memthod
A 2. A method of estimating doubtful accounts that emphasizes asset valuation rather than income
measurement is the allowance method based on
A. Aging of receivables
B. Direct write-off
C. Gross sales
D. Credi sales less sales returns and allowances
C 3. A method of estimating bad debts that focuses on the income statement rather than the statement of
financial position is the allowance method based on
A. Direct write-off
B. aging the trade receivables accounts
C. credit sales
D. the balance in the trade receivables accounts
C 4. Doubtful accounts rate times credit sales equals

A. Allowance for doubtful accounts, adjusted
B. Allowance for doubtful accounts, unadjusted
C. Doubtful accounts expense
D. Accounts written off
A 5. Doubtful accounts rate time credit accounts receivable ending balance equals
C 6. Which of the following is not deducted in computing net sales to determine doubtful accounts based on
net sales?
A. Sales returns
B. Sales allowances
C. Sales discounts
D. All of the above
D 7. The basis in estimating doubtful accounts under the allowance method that uses the composite
doubtful accounts rate is:
A. Credit sales
B. Net sales
C. Aging of accounts receivable
D. Accounts receivable ending balance
C 8. Estimating doubtful accounts based on credit sales

A. violates the matching principle
provides a scientific computation of the allowance for doubtful
B. accounts
C. is simplier to compute than estimating doubtful accounts based on accounts receivable
D. is not an acceptable basis in determining doubtful accounts expense
C 9. In estimating doubtful accounts using the income statement approach, doubtful accounts rate is
multiplied to
A. Total sales consisting of cash and credit sales
B. Sales less sales returns and allowances and sales discount
C. Credit sales
D. Cash sales
A 10. In estimating doubtful accounts using the statement of financial position approach, doubtful accounts
rate times the outstanding accounts receivable at reporting date equals
ANSWER KEY TO Related Multiple Choice Problems

PROBLEM 1:
Miggy Company has a 90-day, 12%, P 100,000 notes receivable dated December 1, 2021.
Questions:
1. What is the accrued interest income at December 31, 2021?
P
A. 10,000
B. P 3,000
C. P 2,000
D. P 1,000
SOLUTION:
P 100,000 x 12% x 30/360 = P 1,000
2. The adjusting entry to record the accrued interest income at December 31, 2021 would include
A. Debit - Cash, P 3,000
B. Credit - Interest Income, P 1,000
C. Debit - Interest Receivable, P 2,000
D. Credit - Interest Income, P 3,000
SOLUTION:
Interest receivable 1,000
Interest
income 1,000
3. What is the maturity value of notes receivable?

A. P 101,000
B. P 100,000
C. P 110,000
D. P 103,000
SOLUTION:
Interest = P 100,000 x 12% x 90/360 = P 3,000
Maturity Value = P 100,000 (principal) + P 3,000 (interest) = P 103,000
4. The journal entry to record the collection of notes receivable on maturity date would include
A. Debit - Cash, P 100,000
B. Credit - Notes Receivable, P 103,000
C. Credit - Interest Income, P 3,000
D. Credit - Notes Receivable, P 97,000
SOLUTION:
Cash (at MV) 103,000
Notes
Receivable 100,000
Interest
Income 3,000
5. Assuming the notes receivable is dishonored on maturity date, the journal entry to record the dishonored note would include
A. Credit - Accounts Receivable, P 103,000

B. Debit - Accounts Receivable, P 103,000
C. Debit - Interest Receivable, P 3,000
D. Credit - Notes Receivable, P 103,000
SOLUTION:
Accounts Receivable 103,000
Notes
Receivable 100,000
Interest
Income 3,000
PROBLEM 2:
(Source: Intermediate Accounting Volume 1, 2020 edition by Valix, Peralta, Valix)
Nova Company reported the folloowing receivables on December 31, 2021:
Accounts receivable of P 4,600,000, net of P 500,000 allowance for doubtful accounts

Interest Receivable, P 190,000
Notes Receivable, P 4,000,000
Additional information:
▪ The notes receivable comprised of the following:
a) P 1,000,000 note dated October 31, 2021 , with principal and interest payable on October 31, 2022.
b) P 3,000,000 note dated March 31, 2021, with principal and 8% interest payable on March 31, 2022.
▪ During 2022, sales revenue totalled P 21,000,000. P 18,000,000 cash was collected from customers, and accounts receivable of P 600,000 were written off. All
sales were made on a credit basis.
▪
Doubtful accounts expense was recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end accounts receivable.
QUESTIONS:
1. What amount should be reported as interest income for 2022?
A. P 110,000
B. P 240,000
P
C. 60,000
P
D. 80,000
SOLUTION:
From Notes Receivable (a)
(See the computation below)
(P 1,000,000 x 6% x 10/12) 50,000 (From January 1, 2022 to October 31, 2022)
From Notes Receivable (b)
(P 3,000,000 x 8% x 3/12) 60,000 (From January 1, 2022 to March 31, 2022)
Interest Income for 2022 110,000
Supporting computation - Interest Receivable at december 31, 2021:

Interest receivable, 12/31/2021 190,000 (Total for both notes receivables)
Less: Interest receivable from
notes receivable (b)
(From March 31, 2021 to December 31,
(P 3,000,000 x 8% x 9/12) 180,000 2021)
(From October 31, 2021 to December 31,
Interest receivable from NR (a) 10,000 2021)
Interest rate for NR (a) should be based on P 10,000 Interest Receivable fror 2 months during 2021:
▪ I = PRT
P 10,000 = P 1,000,000 x R x 2/12
P 10,000 = P 166,666.66667R
R = P 10,000 / P 166,666.66667
R=
6%
2. What amount should be reported as doubtful accounts expense for 2022?

A. P 750,000
B. P 850,000
C. P 600,000
D. P 100,000
SOLUTION:
ADA, 12/31/2022, adjusted
(See computation of AR below)
(P 7,500,000 x
10%) 750,000
Add: ADA, 12/31/2022, unadjusted 100,000 Debit balance
Doubtful accounts expense for 2022 850,000
Supporting computation for AR balance at 12/31/2022:

AR, January 1, 2022 (net) 4,600,000
Add: ADA, January 1, 2022 500,000
AR, January 1, 2022 (gross) 5,100,000
During year 2022:
Credit
sales 21,000,000
Cash collection of accounts (18,000,000)
Accounts written off (600,000)
AR, December 31,
2022 7,500,000
Supporting computation for ADA unadjusted balance at 12/31/2022:
ADA, January 1, 2022 500,000
Less: Accounts written off in 2022 600,000
ADA, December 31, 2022 (100,000) Debit balance
ANSWER KET TO SITUATION 3 (Multiple Choice Questions - Problems)

In relation to the above, answer the following multiple-choice questions. Write your answer on the space provided before each number. Use
only CAPITAL LETTERS.
PROBLEM 1:
Feasible Company sold to another entity a tract of land costing P 5,000,000 for P 7,000,000 on January 1, 2020.
The buyer paid P 1,000,000 and signed a two-year promissory note for the remainder of the purchase price plus 12% interest compounded
annually. The note matures on January 1, 2022.
Based on the foregoing information, answer the following questions:

1. How much is the gain on sale of land on January 1, 2020?
A. P 5,000,000
B. P 2,000,000
C. P 1,000,000
D. No gain nor loss
SOLUTION:
Selling price of tract of land on January 1, 2020 7,000,000
Less: Cost of tract of land 5,000,000
Gain on sale of tract of land on January 1, 2020 2,000,000
2. What amount should be reported as interest income for the year 2020?
A. P 840,000
B. P 720,000
C. P 600,000
D. P 240,000
SOLUTION:
P 6,000,000 x 12% x 1 year = P 720,000
3. What amount should be reported as interest income for the year 2021?
A. P 1,560,000
B. P 1,440,000
C. P 806,400
D. P 720,000
SOLUTION:
(P 6,000,000 x 1.12) x 12% = P 806,400
4. What amount should be reported as accrued interest income as of December 31, 2021?
A. P 1,612,800
B. P 1,560,000
C. P 1,526,400
D. P 1,440,000
SOLUTION:
Accrued interest income from year 2020: P 6,000,000 x 12% x 1 year 720,000
Accrued interest income from year 2021: (P 6,000,000 x 112%) x 12% x 1
year 806,400
Accrued interest income as of December 31, 2021 1,526,400
5. How much cash would be received on January 1, 2022 in settlement of notes receivable?
A. P 6,000,000
B. P 6,806,400
C. P 7,440,000
D. P 7,526,000
SOLUTION:
Principal amount of notes receivable (at face value or face amount) 6,000,000
Accrued interest receivable for two years from yar 2020 to year 2021 1,526,400
Total cash to be received on January 1, 2022 7,526,400
ALTERNATIVE SOLUTION (SHORT-CUT):
P 6,000,000 x 1.12 x 1.12 = P 7,526,400
PROBLEM 2:
Hopeful Company sold to another entity a tract of land costing P 10,000,000 for P 15,000,000 on January 1, 2021.
The buyer paid P 5,000,000 and signed a two-year promissory note for the remainder of the purchase price plus 10% interest
payable annually every December 31. The note matures on January 1, 2023.
Based on the foregoing information, answer the following questions:

1. What is the gain (loss) on sale of land on January 1, 2021?
A. P 5,000,000
B. (P 5,000,000)
C. P 10,000,000
D. P 0
SOLUTION:
Selling Price of the tract of land on January 1, 2021 15,000,000
Less: Acquisition cost of the tract of land 10,000,000
Gain on sale of tract of land 5,000,000
A. P 1,500,000
B. P 1,000,000
C. P 500,000
D. P 0
SOLUTION:
P 10,000,000 x 10% x 1 year = P 1,000,000
A. P 1,500,000
B. P 1,000,000
C. P 500,000
D. P 0
SOLUTION:
P 10,000,000 x 10% x 1 year = P 1,000,000
4. How much cash would be received on January 1, 2023 in settlement of notes receivable?
A. P 15,000,000
B. P 12,000,000
C. P 11,000,000
D. P 10,000,000
SOLUTION:
The cash to be received on January 1, 2023 in settlement of notes receivable is only P 10,000,000, the face amount the notes.
Take note that interest income is collectible annually every December 31 from year 2021 and year 2022.
ANSWER KEY TO SITUATION 3 (Multiple Choice Questions - Problems)

In relation to the above, answer the following multiple-choice questions. Write your answer on the space provided before
each number. Use only CAPITAL LETTERS.
PROBLEM 1:
On January 1, 2021, France Company sold a tract of land that was acquired several years ago for P 1,800,000. France received a three-year note, non-interest
bearing note for P 6,000,000 in exchange for the land. There is no readily available market value for the land, but the current market rate of interest for
comparable notes is 15%. Present value of P 1 for three periods at 15% is 0.6575. Present value of an annuity of P 1 for three periods at 15% is 2.2832.
QUESTIONS:
1. What is the present value of notes receivable at January 1, 2021?
A. P 4,566,400
B. P 2,761,500
C. P 3,196,480
D. P 3,945,000
SOLUTION:
Face amount of notes receivable 6,000,000
Multiply by PVF of P 1 for three periods at 15% 0.6575 (one time payment)
Present value of the notes receivable 3,945,000
2. What is the discount on notes receivable at January 1, 2021?

A. P 2,803,520
B. P 1,438,500
C. P 2,055,000
D. P 1,115,000
SOLUTION:
Face value of notes receivable at January 1, 2021 6,000,000
Less: Present value of notes receivable at 1/1/2021 3,945,000
Discount on notes receivable at January 1, 2021 2,055,000
3. What is the interest revenue recognized in France's profit and loss for the year 2021?
A. P 900,000
B. P 680,513
C. P 591,750
D. P 630,000
SOLUTION:
Inrerest revenue is the amount of amortization of discount on notes receivable for 2021.
Present value of notes receivable at January 1, 2021 3,945,000
Multiplied by effective rate 15%
Interest revenue for 2021 (the amortization amount) 591,750
4. What is the carrying value of notes receivable at December 31, 2021?

A. P 3,945,000
B. P 5,408,250
C. P 4,200,000
D. P 4,536,750
SOLUTION:
Notes Receivable (at face value) 6,000,000
Less: Discount on Notes Receivable at 12/31/2021:
Discount on Notes Receivable before
amortization 2,055,000
Less: Amortization for the year 2021 591,750 1,463,250
Carrying amount of Notes Receivable at 12/31/2021 4,536,750
PROBLEM 2:
On January 1, 2021, Finland Company sold a tract of land that was acquired several years ago for P 1,800,000. France received a three-year note, non-interest
bearing note for P 6,000,000 in exchange for the land. There is no readily available market value for the land, but the current market rate of interest for
comparable notes is 15%. The note is payable in equal annual installments of P 2,000,000 every December 31. Present value of P 1 for three periods at 15% is
0.6575. Present value of an annuity of P 1 for three periods at 15% is 2.2832.
QUESTIONS:
A. P 1,315,000
B. P 4,566,400
C. P 2,761,500
D. P 3,196,480
SOLUTION:
Annual payment of notes receivable 2,000,000
Multiply by PVF of P 1 for three periods at 15% 2.2832 (installment payment)
Present value of the notes receivable 4,566,400

A. P 1,115,000
B. P 1,433,600
C. P 2,803,520
D. P 1,438,500
SOLUTION:
Face value of notes receivable at January 1, 2021 6,000,000
Less: Present value of notes receivable at 1/1/2021 4,566,400
Discount on notes receivable at January 1, 2021 1,433,600
3. What is the interest revenue recognized in Finland's profit and loss for the year 2021?
A. P 197,250
B. P 414,225
C. P 479,472
D. P 684,960
SOLUTION:
Present value of notes receivable at January 1, 2021 4,566,400
4. What is the Total carrying value of notes receivable at December 31, 2021?
A. P 5,251,360
B. P 2,777,275
C. P 3,251,360
D. P 1,652,725
SOLUTION:
Notes Receivable (at face value), January 1, 2021 6,000,000
Less: First annual payment 2,000,000
Notes Receivable (at face value), December, 2021 4,000,000
amortization 1,433,600
Less: Amortization for the year 2021 684,960 748,640
Carrying amount of Notes Receivable at 12/31/2021 3,251,360
PROBLEM 3:
On January 1, 2021, Jamaica Corporation sells equipment costing P 500,000, with a carrying amount of P 80,000, receiving a non-interest bearing note due on
December 31, 2023 with a face amount of P 100,000. There is no established market value for the equipment. The interest rate on similar obligations is estimated
at 12%. The present value of P 1 for three periods is 0.7118 while the present value of an ordinary annuity of P 1 for three periods is 2.4018.
QUESTIONS:
A. P 240,180
B. P 100,000
C. P 71,180
D. P 80,060
SOLUTION:
Face amount of notes receivable 100,000
Multiply by PVF of P 1 for three periods at 15% 0.7118 (one time payment)
Present value of the notes receivable 71,180

A. P 28,820
B. P 19,940
C. P 33,333
D. P 100,000
SOLUTION:
Face value of notes receivable at January 1, 2021 100,000
Less: Present value of notes receivable at 1/1/2021 71,180
Discount on notes receivable at January 1, 2021 28,820
3. What is the gain (loss) on sale of equipment on January 1, 2021?

A. (P 8,820)
B. P 8,820
C. (P 60)
D. P 60
SOLUTION:
Selling price of the equipment (at PV of NR) 71,180
Less: Carrying amount of the equipment at 1/1/2021 80,000
Loss on sale of equipment (8,820)
4. What is the interest revenue recognized in Denmark's profit and loss for the year 2021?
A. P 9,607
B. P 12,000
C. P 8,542
D. P 28,822
SOLUTION:
Present value of notes receivable at January 1, 2021 71,180
5. What is the carrying value of notes receivable at December 31, 2021?

A. P 79,722
B. P 80,787
C. P 83,180
D. P 100,000
SOLUTION:
Notes Receivable (at face value) 100,000
amortization 28,820
Less: Amortization for the year 2021 8,542 20,278
Carrying amount of Notes Receivable at 12/31/2021 79,722
MCQ PROBLEM - SET 3 (AICPA Adapted)

(Source: Intermediate Accounting Volume 1 - 2020 Edition by Valix, Peralta, Valix)
From inception of operations, Comprehensive Company provided for uncollectible accounts expense under the allowance
method using the percentage of sales method.
No year-end adjustments to the allowance for doubtful accounts were made.
The balance in the allowance for doubtful accounts was P 1,000,000 on Januay 1, 2021.
During the current year, credit sales totaled P 20,000,000, interim provisions for doubtful accounts were made at 2% of credit
sales, bad debts of P 200,000 were written off, and recoveries of accounts previously written off amounted to P 50,000.
An aging of accounts receivable was made for the first time on december 31, 2021:
Aging Balance Uncollectible

0 - 60 6,000,000 10%
61 - 180 2,000,000 20%
181 - 360 1,500,000 30%
Over 360 500,000 50%
Based on the review of collectibility of the account balances in the "over 360 days" aging category, additional accounts totaling
P 100,000 are to be written off on December 31, 2021.
Effective wit the year ended december 31, 2021, the entity adapted a new accounting method for estimating the allowance for
doubtful accounts at the amount indicated by the year-end aging of accounts receivable.
QUESTIONS:
1. What is the balance of the allowance for doubtful accounts on December 31, 2021 before adjustment?
A. p 1,100,000
B. P 1,150,000
C. P 1,250,000
D. P 1,200,000
SOLUTION:
Allowance for doubtful accounts, January 1, 2021 1,000,000
Interim provision for doubtful accounts
(P 20,000,000 credit sales x 2% DA rate) 400,000
Accounts written off during the year (200,000)
Recovery of accounts previously written off 50,000
Additional accounts written off from over 360 days past due (100,000)
Allowance for doubtful accounts, December 31, 2021, unadjusted 1,150,000
2. What is the required allowance for doubtful accounts on December 31, 2021?
A. P 1,650,000
B. P 1,950,000
C. P 1,700,000
D. P 1,450,000
SOLUTION:
Allowance for doubtful accounts, 12/31/2021, adjusted
Age of AR Balance Uncollectible ADA, adjusted

0 - 60 6,000,000 10% 600,000
61 - 180 2,000,000 20% 400,000
181 - 360 1,500,000 30% 450,000
Over 360 400,000 50% 200,000
1,650,000
Notes:
Over 360 days past due is P 400,000 because of additional write off from this group.
P 500,000 original balance - P 100,000 additional write-off = P 400,000 as adjusted balance.
3. What amount should be reported as doubtful accounts expense for the current year?
A. P 1,200,000
B. P 1,650,000
C. P 900,000
D. P 950,000
SOLUTION:
Allowance for doubtful accounts, December 31, 2021, adjusted 1,650,000
Less: Allowance for doubtful accounts, December 31, 2021, unadjusted 1,150,000
Doubtful accounts expense for the current year 2021 based on aging 500,000 AJE
Add: Doubtful accounts expense as interim provision based on credit sales
Doubtful accounts expense for the current year 2021 900,000
4. What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2021?
P 900,000
A. debit
P 900,000
B. credit
P 500,000
C. debit
P 500,000
D. credit
SOLUTION:
Doubtful Accounts expense 500,000
Allowance for Doubtful Accounts 500,000
5. What is the net realizable value of accounts receivable on December 31, 2021?
A. P 9,900,000
B. P 8,250,000
C. P 8,350,000
D. P 8,200,000
SOLUTION:
Age of AR Balance
0 - 60 6,000,000
61 - 180 2,000,000
181 - 360 1,500,000
Over 360 400,000
AR, December 31, 2021 9,900,000
Less: ADA, December 31, 2021, adjusted 1,650,000
Net Realizable Value of AR, 12/31/2021 8,250,000

Sky Company provided the following information at year-end:
Year 2021 Year 2020

Accounts receivable 880,000 800,000
Allowance for doubtful accounts (10,000) (15,000)
Allowance for sales returns (20,000) (25,000)
Net realizable value 850,000 760,000
The entity reported doubtful accounts expense in 2020 of P 30,000 and had products returned for credits totaling P 15,000 at
sale price. Gross sales for 2021 amounted to P 6,150,000.
QUESTIONS:
1. What amount of accounts receivable was written off during 2021?
A. P 35,000
B. P 30,000
C. P 15,000
D. P 10,000
SOLUTION:
Allowance for DA
Debit Credit
January 1, 2021 balance 15,000
Accounts written-off during 2021 35,000
Provision for DAE in 2021 30,000
December 31, 2021 balance 10,000
Alternative solution:
ADA, January 1, 2021 balance 15,000
Add: Accounts written off in 2021 30,000
Total 45,000
Less: ADA, December 31, 2021 10,000
Accounts written off in 2021 35,000
2. What amount was collected from customers during 2021?

A. P 6,035,000
B. P 6,070,000
C. P 6,020,000
D. P 6,100,000
SOLUTION:
Accounts Receivable
Debit Credit
Gross sales during 2021 6,150,000
Sales returns during the year 2021 15,000
Accounts written-off (See No. 1) 35,000
Collection from customers in 2021 6,020,000

Accounts receivable, January 1, 2021 balance 800,000
Add: Gross sales during 2021 (credit sales) 6,150,000
Total 6,950,000
Less: Sales returns during the year 2021 15,000
AR, December 31, 2021 balance 880,000 930,000
3. What amount was recorded as estimated sales returns during 2021?

A. P 10,000
B. P 15,000
C. P 20,000
D. P 5,000
SOLUTION:
Allowance for Sales Returns
Debit Credit
January 1, 2021, balance 25,000
Actual sales returns in 2021 15,000
Estimated sales returns in 2021 10,000 To Income Statement
December 31, 2021, balance 20,000
Allowance for sales returns, 12/31/2021 20,000
Add: Actual sales returns in 2021 15,000
Total 35,000
Less: Allowance for sales returns, 1/1/2021 25,000
Estimated sales returns during 2021 10,000 To Income Statement
4. What amount was reported as net sales for 2021?
A. P 6,150,000
B. P 6,140,000
C. P 6,100,000
D. P 6,135,000
SOLUTION:
Less: Estimated sales returns during 2021 10,000
Net sales for 2021 6,140,000
MCQ 1
On January 1, 2020, Savage Company sold goods to another entity. The buyer signed a non-
interest-bearing note requiring payment of P 600,000 annually for seven years. The first
payment was made on January 1, 2020. The prevailing rate of interest for this type of note at
date of issuance was 10%.
Periods PV of 1 at 10% PV of OA 1 at 10%

6 0.56 4.36
7 0.51 4.87
What amount should be reported as sales revenue?

A. P 3,216,000
B. P 2,922,000
C. P 2,616,000
D. P 2,142,000
SOLUTION:
Annual payment for six years 600,000
Multiply by PV of OA 1 at 10% for 6 periods 4.36
Present value of notes for six years 2,616,000
Add: First payment on 1/1/2020, date of sale 600,000
Sales revenue to be reported 3,216,000
MCQ 2
On December 31, 2020, Humility Company sold a machine to another entity in exchange for a
non-interest-bearing note requiring ten annual payments of P 500,000. The buyer made the
first payment on December 31, 2020.
Periods PV of 1 at 10% PV of OA 1 at 10%

9 0.50 6.25
10 0.46 6.71
On December 31, 2020, what is the carrying amount of notes receivable?

A. P 2,250,000
B. P 2,300,000
C. P 3,125,000
D. P 3,355,000
SOLUTION:
Annual paymnt for 9 years 500,000
Multiply by PV of OA 1 at 8% for 9 periods 6.25
Present value of notes for six years 3,125,000
MCQ 3
On December 31, 2020 Jovial Company received two P 1,000,000 notes receivable from
customers in exchange for services rendered.
On both notes, interest is calculated on the outstanding principal balance at the annual rate of
3% and payable at maturity.
The note from Zeta Company made under customary trade terms, is due in nine months and
the note from Yola Company is due in five years.
The market interest rate for similar notes on December 31, 2019 was 8%.
The present value of 1 due in nine months is 0.944 and the present value of 1 due in five years is 0.68.
QUESTIONS:
1. At what amount should the note receivable from Zeta Company to be reported on December 31, 2020?
A. P 1,000,000
B. P 944,000
C. P 965,200
D. P 972,320
SOLUTION:
P 1,000,000 because this should be at face value because the notes is due in nine months,
2. At what amount should the note receivable from Yola Company be reported in December 31, 2020?
A. P 1,000,000
B. P 782,000
C. P 932,000
D. P 680,000
SOLUTION:
Face value of notes from Yola Company 1,000,000
Interest annually (P 1,000,000 x 3% x 5 years) 150,000
FV of notes and interest payable at maturity 1,150,000
Multiply by PFVF of 1 due in five years at 8% 0.68
Carrying value of NR from Yola at
12/31/2020 782,000
MCQ 4
Persevere Company is a dealer in equipment. On December 31, 2019, the entity sold an
equipment in exchange for a noninterest bearing note requiring five annual payments of P
500,000. The first payment was made on December 31, 2020.
The market interest rate for similar notes was 8%.
PV of 1 at 8% for 5 periods 0.68

PV of an ordinary annuity of 1 at 8% for 5 periods 3.99
QUESTIONS:
1. On December 31, 2019, what is the carrying amount of notes receivable?
A. P 2,500,000
B. P 1,995,000
C. P 1,700,000
D. P1,495,000
SOLUTION:
Annual payment for five years 500,000
PV of an ordinary annuity of 8% for 5 periods 3.99
Carrying amount of notes receivable 1,995,000
2. What amount of interest should be reported for 2020?

A. P 505,000
B. P 101,000
C. P 159,600
D. P 119,600
SOLUTION:
Present value of notes receivable, 12/31/2019 1,995,000
Multiply by effective rate 8%
Interest Income 159,600
Yr. Date Collection Interest Principal PV

PV x 8% ER Coll'n - Int. PV - Prin.
0 12/31/2019 1,995,000
1 12/31/2020 500,000 159,600 340,400 1,654,600
2 12/31/2021 500,000 132,368 367,632 1,286,968
3 12/31/2022 500,000 102,957 397,043 889,925
4 12/31/2023 500,000 71,194 428,806 461,119
5 12/31/2024 500,000 38,881 461,119 0
3. What is the carrying amount of the notes receivable on December 31, 2020?
A. P 1,654,000
B. P 2,154,000
C. P 2,000,000
D. P 1,495,000
SOLUTION:
Preset value of notes receivable, 12/31/2019 1,995,000
Less: Principal payment
Annual payment for 2020 500,000
Interest income (P 1,995,600 x 8%) 159,648 340,352
Carrying amount of Notes Receivable, 12/31/2020 1,654,648
4. What is the amount of interest income that should be reported for 2021?
A. P 132,368
B. P 172,368
C. P 160,000
D. P 200,000
SOLUTION:
Present value of notes receivable, 12/31/2020 1,654,600
Interest Income 132,368 Letter A
MCQ 5
Persevere Company is a dealer in equipment. On December 31, 2020, the entity sold an
equipment in exchange for a noninterest bearing note requiring five annual payments of P
500,000. The first payment was made on December 31, 2021.
The prevailing interest rate for this type of note at date of issuance is 12%.
PV of 1 at 12% for 10 periods 0.322
PV of an ordinary annuity of 1 at 12% for 10 periods 5.650
QUESTIONS:
1. On December 31, 2020, what is the carrying amount of notes receivable?
A. P 5,000,000
B. P 2,175,000
C. P 1,610,000
D. P 2,825,000
SOLUTION:
Annual payment for 10 years 500,000
Multiply by PVF of an ordinary annuity of 1 at 12% for 10 periods 5.650
Carrying amount of notes receivable at 12/31/2020 2,825,000 Letter D
2. What is the gain on sale of equipment to be recognized in 2020?

A. P 3,000,000
B. P 2,175,000
P
C. 825,000
D. P 0
SOLUTION:
Present value of notes receivable at date of sale, 12/31/2020 2,825,000
Less: Carrying costs of equipment (given in the problem) 2,000,000
Gain on sale of equipment 825,000 Letter C
3. What amount of interest income should be recognized for 2021?

A. P 600,000
B. P 339,000
C. P 319,000
D. P 300,000
SOLUTION:
Present Value of notes receivable, 12/31/2021, date of sale 2,825,000
Interest income for the year 2021 339,000 Letter B
4. What is the carrying amount of the notes receivable on December 31, 2021?
A. P 2,325,000
B. P 4,500,000
C. P 2,825,000
D. P 2,664,000
SOLUTION:
PV of notes receivable 12/31/2020, date of sale 2,825,000
Less: Principal payments made:
Annual payment for 2021 500,000
Less: Interest income for 2021 (See no. 3) 339,000 161,000
Carrying amount of notes receivable at 12/31/2020 2,664,000 Letter D
Yr. Date Collection Interest Principal PV

PV x 12% ER Coll'n - Int. PV - Prin.
0 12/31/2020 2,825,000
1 12/31/2021 500,000 339,000 161,000 2,664,000
2 12/31/2022 500,000 319,680 180,320 2,483,680
3 12/31/2022 500,000 298,042 201,958 2,281,722
4 12/31/2022 500,000 273,807 226,193 2,055,528
5 12/31/2022 500,000 246,663 253,337 1,802,192
6 12/31/2022 500,000 216,263 283,737 1,518,455
7 12/31/2022 500,000 182,215 317,785 1,200,669
8 12/31/2022 500,000 144,080 355,920 844,749
9 12/31/2022 500,000 101,370 398,630 446,119
10 12/31/2022 500,000 53,881 446,119 0
MCQ 1
Moderate Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 10% payable annually starting December 31,
2020. The loan matures in three years on December 31, 2022.
Principal amount 5,000,000

Direct origination costs incurred 100,000
Indirect origination costs incurred 50,000
Origination fees charged against the borrower 340,000
After considering the origination fee received from the borrower and the direct origination cost incurred, the effective rate on the loan is
12%.
QUESTIONS:
1. What is the carrying amount of the loan receivable on January 1, 2020?
A. P 4,760,000
B. P 5,000,000
C. P 4,810,000
D. P 4,660,000
SOLUTION:
Principal amount of loan 5,000,000
Less: Unearned Interest Income, January 1, 2020
Origination fees charged against the borrower 340,000
Less: Direct origiation costs incurred 100,000 240,000
Carrying value of loan receivable, January 1, 2020 4,760,000
2. What is the interest income for 2020?

A. P 571,200
B. P 500,000
C. P 476,000
D. P 547,200
SOLUTION:
Interest Income for 2020 571,200
3. What is the carrying amount of the loan receivable on December 31, 2020?
A. P 5,000,000
B. P 4,760,000
C. P 4,831,200
D. P 4,910,944
SOLUTION:
Add: Amortization of unearned interest income
Interest income (See number 2) 571,200
Less: Interest received (P 5,000,000 x 10% x 1 year) 500,000 71,200
MCQ 2
Solid Bank loaned P 5,000,000 to a borrower on January 1, 2018. The terms of the loan require principal payments of P 1,000,000 each
year for 5 years plus interest at 8%.
The first principal and interest payment are due on January 1, 2019. The borrower made the required payments during 2019 and 2020.
However, during 2020 the borrower began to experience financial difficulties, requiring the bank to reassess the collectability of the loan.
On December 31, 2020, the bank has determined that the remaining principal payment will be collected as originally scheduled but the
collection of the interest is unlikely.
The bank did not accrue the interest on December 31, 2020.
Present valueof 1 at 8%:

For one period 0.926
For two pweriosa 0.857
For three periods 0.794
QUESTIONS:
1. What is impairment loss for 2020?
A. P 423,000
B. P 217,000
C. P 222,000
D. P 0
SOLUTION:
Face value of loan on January 1, 2018 5,000,000
Less: Payments made prior to default:
On January 1, 2019 (for year 2018) 1,000,000
On January 1, 2020 (for year 2019) 1,000,000
On Jauary 1, 2021 (fo year 2020) 1,000,000 3,000,000
Carrying value or present value at December 31, 2020 2,000,000
Less: Present value of expected future cash flows - principal:
On January 1, 2022 (P 1,000,000 x 0.926) - For year 2021 926,000
On January 1, 2023 (P 1,000,000 x 0.857) - For year 2022 857,000 1,783,000
Impairment loss for 2020 217,000

A. P 126,160
B. P 142,640
C. P 240,000
D. P 0
SOLUTION:
Interest income for 2021 = P 1,783,000 PV at 12/31/2020 x 8% = P 142,640
3. What is the carrying amount of the loan receivable on Decenver 31, 2021?
A. P 2,000,000
B. P 1,925,640
C. P 1,640,000
D. P 1,783,000
SOLUTION:
Loan Receivable, 12/31/2021 2,000,000
Less: Allowance for Loan Impairment
Allowance for Loan Impairment, 12/31/2020 217,000
Less: Amortization during 2021 (P 1,783,000 x 8%) 142,640 74,360
Impairment Loss 1,925,640
MCQ 3
Oblation Bank loaned P 9,000,000 to a borrower on January 1, 2018. The terms of the loan were payment in full on January 1, 2023, plus
annual interest payment at 12%.
The interest payment was made as scheduled on January 1, 2019. However, due to financial setbacks, the borrower was unable to make
the 2020 interest payment.
The bank considered the loan impaired and projected the cash flows from the loan on December 31, 2020.
The bank accrued the interest on December 31, 2019 but did not continue to accrue interest for 2020 due to the impairment of the loan.
The projected cash flows are:
Amount Projected on
Date of Cash Flows December 31, 2020
December 31, 2021 1,500,000
December 31, 2022 2,000,000
December 31, 2023 2,500,000
December 31, 2024 3,000,000
The present value of 1 at 12% is 0.89 for one period, 0.80 for two periods, 0.71 for three periods, and 0.64 for four periods.
QUESTIONS:
1. What is the loan impairment loss for 2020?
A. P 2,370,000
B. P 3,450,000
C. P 6,630,000
D. P 2,450,000
SOLUTION:
Face value of loan on January 1, 2018 9,000,000
Less: Payments made prior to default 0
Face value at December 31, 2020 9,000,000
Add: Accrued interest receivable for 2019 (P 9,000,000 x 12%) 1,080,000
Carrying value of loan receivable at December 31, 2020 10,080,000
Less: Present value of expected future cash flows:
On December 31, 2021 (P 1,500,000 x 0.89) 1,335,000
On December 31, 2022 (P 2,000,000 x 0.80) 1,600,000
On December 31, 2023 (P 2,500,000 x 0.71) 1,775,000
On December 31, 2024 (P 3,000,000 x 0.64) 1,920,000 6,630,000
Impairment Loss for 2020 3,450,000

A. P 795,600
B. P 900,000
C. P 180,000
D. P 0
SOLUTION:
Interest income for 2021 = P 6,630,000 PV of Loan receivable x 12% = P 795,600
A. P 5,925,600
B. P 4,845,600
C. P 6,330,000
D. P 7,600,000
SOLUTION:
Loans Receivable, 12/31/2020 9,000,000
Less: Collection on December 31, 2021 1,500,000
Carrying amount of loan receivable, 12/31/2021 7,500,000
Less: Allowance for Loan Impairment, 12/31/2021
Allowance for Loan Impairment, 12/31/2020* 2,370,000

Less; Amortization during 2020 (P 6,630,000 x 12%) 795,600 1,574,400
Carrying amount of Loan Receivable, 12/31/2021 5,925,600
* Allowance for loan Impairment, unadjusted, 12/31/2020 3,450,000

Less: Accrued Interest Receivable for 2019 1,080,000
Allowance for Loan Impairment, adjusted, 12/31/2020 2,370,000
The relate djournal entry on December 31, 2020 is:

Impairment Loss 2,450,000
Allowance for Loan Impairment 2,370,000
Interest Receivable 1,080,000
MCQ 4
On December 31, 2020, Oregon Bank recorded an investment of P 5,000,000 in a loan granted to a client.
The loan has a 10% effective interest rate payable annually every December 31. The principal is due in full at maturity on December 31,
2023.
Unfortunately, the borrower is experiencing significant financial difficulty and will have difficult time in making full payment.
The bank projected that the entire principal will be paid at maturity and 4% interest or P 200,000 will be paid annually on December 31 of
the next three years. There is no accrued interest on December 31, 2020.
The present value of 1 at 10% for three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for three periods is 2.49.
QUESTIONS:
1. What is the impairment loss of 2020?
A. P 752,000
B. P 600,000
C. P 250,000
D. P 748,000
SOLUTION:
Face value of loan on December 31, 2020 5,000,000
Less: Payments made prior to default 0
Face value at December 31, 2020 5,000,000
Add: Accrued interest receivable for 2020 0
Carrying value of loan receivable at December 31, 2020 5,000,000
Less: Present value of expected future cash flows:
Principal - P 5,000,000 x 0.75 3,750,000
Interest - P 200,000 x 2.49 498,000 4,248,000
Impairment Loss for 2020 752,000
The related journal entry is:

Impairment Loss 752,000
Allowance for Loan
Impairment 752,000
2. What is the Interest Income for 2021?

A. P 200,000
B. P 424,800
C. P 224,800
D. P 500,000
SOLUTION:
Amortization of Allowance for Loan Impairment for 2021:
Present value of Loan Receivable, 12/31/2020 4,248,000
Multiply by effective interest rate 10% 424,800
Less: Interest received in principal for year 2021 200,000
Amortization or Allowance for Loan Impairment 224,800
The related journal entry is:

Cash 200,000
Allowance for Loan Impairment 224,800
A. P 5,000,000
B. P 3,750,000
C. P 4,472,800
D. P 4,672,800
SOLUTION:
Loan Receivable, 12/31/2020 5,000,000
Less: Allowance for Loan Impairment
Allowance for Loan Impairment, 12/31/2020 (Req. 1) 752,000
Less: Amortization during 2020 (Req. 2) 224,800 527,200
Carrying amount of Loan Receivable, 12/31/2020 4,472,800
MCQ 5
On December 31, 2020, London Bank granted a P 5,000,000 loan to a borrower with 10% stated rate payable annually and maturing in 5
years. The loan was discounted at the market interest rate of 12%.
Unfortunately, the financial condition of the borrower worsened because of the lower revenue.
On December 31, 2022, the bank determined that the borrower would pay back only P 3,000,000 of the principal at maturity.
However, it was considered likely that interest would continue to be paid on the P 5,000,000 loan.
The present value of 1 at 12% is 0.57 for five periods and 0.71 for three periods.
The present value of an ordinary annuity of 1 at 12% is 3.60 for five periods and 2.40 for three periods.
QUESTIONS:
1. What is the amount of cash paid to the borrower on December 31, 2020?
A. P 4,400,000
B. P 4,500,000
C. P 5,000,000
D. P 4,650,000
SOLUTION:
Present value of principal amount
(P 5,000,000 x 0.57 PVF) 2,850,000
Present value of annual interest collection:
(P 5,000,000 x 10% stated rate x 3.60 PVF) 1,800,000
Present value/Cash paid to borrower on 12/31/2020 4,650,000
Face amount of principal 5,000,000

Less: Present value of all future cash flows 4,650,000
Unearned Interest Income 350,000
The related journal entry upon granting of loan:

Loan Receivable (at face amount) 5,000,000
Unearned Interest Income 350,000
Cash 4,650,000
A. P 4,650,000
B. P 4,790,000
C. P 4,772,960
D. P 4,720,000
SOLUTION:
Interest Interest Amortization of
Received at Income at Unearned Int. CA/PV of
Date 10% SR 12% ER Inc Loan Rec.
(a) (b) (c) = (b) - (a)
12/31/2020 4,650,000
12/31/2021 500,000 558,000 58,000 4,708,000
12/31/2022 500,000 564,960 64,960 4,772,960
Interest received = P 5,000,000 face amount x 10% SR = P 500,000

Interest income for 2021 = P 4,650,000 x 12% = P 558,000
Amortization for 2021 = P 558,000 interest income - P 500,000 interest received = P 58,000
PV of LR at 12/31/2021 = P 4,650,000 previous PV + P 58,000 amortization = P 4,708,000
Interest income for 2022 = P 4,708,000 x 12% = P 564,960

Amortization for 2022 = P 564,960 interest income - P 500,000 interest received = P 64,960
PV of LR at 12/31/2022 = P 4,708,000 previous PV + P 64,960 amortization = P 4,772,960
3. What is the impairment loss on loan receivable to be recognized for 2022?

A. P 2,000,000
B. P 1,442,960
C. P 1,992,960
D. P 1,670,000
SOLUTION:
Carrying value at December 31, 2022 4,772,960
Less: Present value of expected futurecash flows:
Principal = P 3,000,000 x 0.71 PVF 2,130,000
Interest = P 500,000 x 2.40 PVF 1,200,000 3,330,000
Impairment Loss for 2020 1,442,960
MCQ 6
Entity X provided the following information regarding its Notes Receivable at December 31, 2020:
Gross
Carrying Lifetime
Note Amount ECL 12-month ECL Credit Risk Assessment
A 3,000,000 300,000 50,000 Low credit risk
B 2,000,000 400,000 40,000 31-days past due
C 1,000,000 500,000 60,000 Credit impaired
1. The loss allowance that Entity X should recognize at December 31, 2020 is:
A. P 1,200,000
B. P 950,000
C. P 900,000
D. P 590,000
SOLUTION:
Gross Loss
Carrying Lifetime Allowance,
Note Amount ECL 12-month ECL Credit Risk Assessment Stage 12/31/2020
A 3,000,000 300,000 50,000 Low credit risk 1 50,000
B 2,000,000 400,000 40,000 31-days past due 2 400,000
C 1,000,000 500,000 60,000 Credit impaired 3 500,000
950,000
MCQ 1
On December 1, 2020, Solvent Company assigned specific accounts receivable totaling P 5,000,000 as collateral on a P 4,000,000 12% note
from a certain bank. The entity will continue to collect the assigned accounts receivable.
In addition to the interest on the note, the bank also charged a 5% finance fee deducted in advance on the assigned accounts.
The December collections of assigned accounts receivable amounted to P 2,000,000 less cash discount of P 200,000.
On December 31, 2020, the entity remitted the collections to the bank in payment for the interest accrued on December 31, 2020 and the notes
payable.
The entity accepted sales returns of P 100,000 on the assigned accounts and wrote off assigned accounts of P 300,000.
QUESTIONS:
1. What amount of cash was received from the assignment of accounts receivable on December 1, 2020?
A. P 4,000,000
B. P 3,800,000
C. P 4,750,000
D. P 3,750,000
SOLUTION:
Cash received on 12/1/2020 = Borrowings amount – Finance fee deducted in advance
Cash received on 12/1/2020 = P 4,000,000 borrowings – (P 5,000,000 AR assigned x 5% finance fee)
Cash received on 12/1/2020 = P 4,000,000 – P 250,000
Cash received on 12/1/2020 = P 3,750,000 (Letter D)
2. What is the carrying amount of notes payable on December 31, 2020?

A. P 1,840,000
B. P 2,140,000
C. P 2,240,000
D. P 2,200,000
SOLUTION:
Notes Payable original balance, 12/1/2020 4,000,000
Less: Payment made during 2020:
Accounts Receivable assigned collected 2,000,000
Less: Sales Discount 200,000
Net cash
collected 1,800,000
Less: Interest expense (P 4,000,000 x 12% x 1/12) 40,000 1,760,000
Notes Payable balance, 12/31/2020 2,240,000
3.
What amount should be disclosed as the equity of Solvent Company in the assigned accounts on December 31, 2020?
A. P 260,000
B. P 400,000
C. P 360,000
D. P 760,000
SOLUTION:
Accounts Receivable - Assigned balance, 12/1/2020 5,000,000
Less: Collections during 2020 2,000,000
Sales returns during 2020 100,000
Accounts written off during 2020 300,000 2,400,000
Accounts Receivable - Assigned balance, 12/31/2020 2,600,000
Less: Notes Payable balance, 12/31/2020 2,240,000
Equity in the Assigned Accounts, 12/31/2020 360,000
MCQ 2
Brawny Company factored P 8,000,000 of accounts receivable to a finance entity at the beginning of the current year. Control was surrendered
by Brawny Company.
The factor assessed a fee of 5% and retained a holdback equal to 10% of the accounts receivable.
In addition, the factor charged 15% interest computed on a weighted average time to maturity of the accounts receivable of 30 days. (Hint: use
365 days)
QUESTIONS:
1. What amount was initially received by Brawny Company from factoring?
A. P 6,701,370
B. P 6,800,000
C. P 7,501,370
D. P 6,700,000
SOLUTION:
Accounts Receivable factored 8,000,000
Less: Factoring Fee (5% x P 8,000,000) 400,000
Factor’s Holdback (10% x P 8,000,000) 800,000
Interest computed on a weighted average time:
(P 8,000,000 x 15% x 30/365) 98,630 1,298,630
Amount initially received from factoring 6,701,370
2. Assuming all accounts receivable are collected, what is the loss on factoring?
A. P 400,000
B. P 498,630
C. P 898,630
D. P 98,630
SOLUTION:
Cash amount received from factoring 6,701,370
Add: Receivable from factoring (for future collection) 800,000
Total cash inflows 7,501,370
Less: Accounts Receivable Factored 8,000,000
Loss on factoring -498,630
MCQ 3
Crater Company factored with recourse P 2,000,000 of accounts receivable with a bank.
The finance charge is 5% and 10% was retained to cover sales discounts, sales returns and sales allowances.
The transactions met the condition to be considered as sale subject to recourse for non-payment. The factor estimated the recourse obligation
at P 50,000.
What amount should be recognized initially as loss on factoring?

A. P 200,000
B. P 100,000
C. P 150,000
D. P 250,000
SOLUTION:
Factoring Fee (5% x P 2,000,000) 100,000
Add: Recourse Liability 50,000
Loss on factoring 150,000
MCQ 4
Zeus Company factored P 6,000,000 of accounts receivable to a finance entity at the beginning of the current year. Control was surrendered by
Zeus Company.
The factor accepted the accounts receivable subject to recourse for nonpayment the fair value of the recourse obligation is P 100,000.
The factor assessed a fee of 3% and retained a holdback equal to 5% of the accounts receivable.
In addition, the factor charged 15% interest computed on a weighted average time to maturity of the account receivable of 54 days. (Hint: Use
365 days)
QUESTIONS:
1. What is the amount of cash initially received from the factoring?
A. P 5,296,850
B. P 5,836,850
C. P 5,476,850
D. P 5,556,850
SOLUTION:
Accounts Receivable factored 6,000,000
Less: Factoring Fee (3% x P 6,000,000) 180,000
Factor’s Holdback (5% x P 6,000,000) 300,000
Interest computed on a weighted average time:
(P 6,000,000 x 15% x 54/365) 133,150 613,150
Amount initially received from factoring 5,386,850
2. If all accounts receivables are collected, what is the loss on factoring the accounts receivable?
A. P 313,150
B. P 180,000
C. P 433,150
D. P 613,150
SOLUTION:
Factoring Fee (3% x P 6,000,000) 180,000
Add: Interest computed on a weighted average time: 133,150
3. If all accounts receivables are not collected, what is the loss on factoring?
A. P 713,150
B. P 100,000
C. P 413,150
D. P 313,150
SOLUTION:
Factoring Fee (3% x P 6,000,000) 180,000
Interest computed on a weighted average time: 133,150
Recourse obligation 100,000
MCQ 5
During the second year of operations, Fauna Company found itself in financial difficulties. The entity decided to use accounts receivable as a
means of obtaining cash to continue operations.
On July 1, 2020, the entity sold P 1,500,000 of accounts receivable for cash proceeds of P 1,390,000. No bad debt allowance was associated
with these accounts.
On December 15, 2020, the entity assigned the remainder of the accounts receivable, P 5,000,000 as of that date, as collateral on a P
2,500,000, 12% annual interest loan.
The entity received P 2,500,000 less a 2% finance charge. None of the assigned accounts had been collected by the end of the year.
Allowance for bad debts before adjustment, 12/31/2020 100,000

10% of accounts
Estimated uncollectible, 12./31/2020 receivable
Accounts receivable, not including factored and assigned accounts, 12/31/2020 1,000,000
Accounts receivable-assigned 5,000,000
Accounts receivable-factored 1,500,000
QUESTIONS:
1. What is the total amount of cash received from the financing of accounts receivable during the year?
A. P 3,840,000
B. P 1,390,000
C. P 3,890,000
D. P 3,540,000
SOLUTION:
Cash proceeds from sale of accounts receivable 1,390,000
Add: Cash proceeds from assignment of accounts receivable:
Gross cash receipts 2,500,000
Less: Finance Charge (2% x P 2,500,000) 50,000 2,450,000
Total cash received from accounts receivable financing 3,840,000
2. What amount of accounts receivable should be reported as currenta ssets on December 31, 2020?
A. P 6,000,000
B. P 1,000,000
C. P 5,000,000
D. P 7,500,000
SOLUTION:
Accounts Receivable - unassigned 1,000,000
Accounts Receivable - assigned 5,000,000
Total 6,000,000
3. What is the bad debts expense for the current year?

A. P 600,000
B. P 500,000
C. P 650,000
D. P 750,000
SOLUTION:
Allowance for Doubtful Accounts, 12/31/2020, adjusted
(P 6,000,000 X 10%) 600,000
Less: Allowance for Doubtful Accounts, 12/31/2020, unadjusted 100,000
Bad Debts Expense for the current year 2020 500,000
MCQ 6
Foremost Company received from a customer a one-year P 500,000 note bearing annual interest of 8%. After holding the note for six months,
the entity discounted the note at the bank at an effective interest rate of 10%.
QUESTIONS:
1. What amount of cash was received from the bank?
A. P 540,000
B. P 523,810
C. P 513,000
D. P 495,238
SOLUTION:
Face of notes receivable 500,000
Add: Interest Income at maturity date (P 500,000 x 8% x 1 year) 40,000
Maturity Value 540,000
Less: Discount (P 540,000 x 10% x 6/12) 27,000
Amount of cash received from the bank 513,000
2. What is the loss on notes receivable discounting?

A. P 20,000
B. P 13,000
C. P 7,000
D. P 0
SOLUTION:
Net Proceeds 513,000
Less: Carrying amount:
Principal 500,000
Accrued Interest Income (P 500,000 x 8% x 6/12) 20,000 520,000
Loss on Notes Receivable Discounting -7,000
ALTERNATIVE SOLUTION - BY JOURNAL ENTRY:

Cash 513,000
Loss on Notes Receivable Discounting (squeeze figure) 17,000
Notes Receivable Discounted (silent - with recourse) 500,000
Interest Income (P 500,000 x 8% x 6/12) 20,000
MCQ 7
On July 1, 2020, Jolly Company sold goods in exchange for P 2,000,000, 8-month, non-interest-bearing note receivable.
At the time of the sale, the note’s market rate of interest was 12%. The note was discounted at 10% on September 1, 2020.
QUESTIONS:
1. What amount was received from the note receivable discounting?
A. P 1,940,000
B. P 1,938,000
C. P 1,900,000
D. P 1,880,000
SOLUTION:
Face of notes receivable 2,000,000
Add: Interest Income at maturity 0
Maturity Value 2,000,000
Less: Discount (P 2,000,000 x 10% x 6/12) 100,000
Amount of cash received from the bank 1,900,000
2. What is the loss on notes receivable discounting?

A. P 100,000
B. P 125,000
C. P 25,000
D. P 0
SOLUTION:
Net Proceeds 1,900,000
Less: Carrying amount 2,000,000
ALTERNATIVE SOLUTION - BY JOURNAL ENTRY

Cash 1,900,000
Loss on Notes Receivable Discounting 100,000
Notes Receivable Discounted (silent - with recourse) 2,000,000
MCQ 8
Tender Company accepted from a customer a P 4,000,000, 90-day, 12% note dated August 31, 2020.
On September 30, 2020, the entity discounted without recourse the note at 15%. However, the proceeds were not received until October 1,
2020.
QUESTIONS:
1. What amount was received from the note receivable discounting?
A. P 4,017,000
B. P 4,120,000
C. P 4,103,000
D. P 3,965,500
SOLUTION:
Add: Interest Income at maturity (P 4,000,000 x 12% x 90/360) 120,000
2. What amount should be reported as loss on note receivable discounting?

A. P 17,000
B. P 23,000
C. P 40,000
D. P 0
SOLUTION:
Net proceeds 4,017,000
Principal 4,000,000
Add: Accrued Interest Receivable (P 4,000,000 x 12% x 1/12) 40,000 4,040,000

Cash 4,017,000
Notes
Receivable 4,000,000
MCQ 9
On April 1, 2019, Aljean Company discounted without recourse a 9-month, 10% note dated January 1, 2019 with face of P 6,000,000. The bank
discount rate is 12%. The discounting transaction is accounted for as a conditional sale with recognition of contingent liability.
On October 1, 2019, the maker dishonored the note receivable. The entity paid the bank the maturity value of the note plus protest fee of P
50,000.
On December 31, 2019, the entity collected the dishonored note receivable in full plus 12% annual interest on the total amount due
QUESTIONS:
1. What amount was received from the note receivable discounting on April 1, 2019?
A. P 6,063,000
B. P 6,450,000
C. P 6,150,000
D. P 5,963,000
SOLUTION:
Add: Interest Income at maturity (P 6,000,000 x 10% x 9/12) 450,000
2. What amount should be recognized as loss on note receivable discounting?

A. P 450,000
B. P 387,000
C. P 87,0000
D. P 63,000
SOLUTION:
Net proceeds 6,063,000
Principal 6,000,000
Add: Accrued Interest Receivable (P 6,000,000 x 10% x 3/12) 150,000 6,150,000

Cash 6,063,000
Notes
Receivable 6,000,000
3. What is the total amount collected from the customer on December 31, 2019?
A. P 6,450,000
B. P 6,500,000
C. P 6,695,000
D. P 6,662,500
SOLUTION:
Maturity value (principal amount in discounting) 6,450,000
Add: Protest Fee 50,000
Total payments made to bank 6,500,000
Add: Interest on total amount due (P 6,500,000 x 12% x 3/12) 195,000
Amount collected from customer 6,695,000
4. If the discounting is secured borrowing, what is incpuded in the journal entry to record the transaction?
A. Debit loss on notes receivable P 87,000
Debit interest expense P
B. 87,000
Credit liability for note discounted P
C. 6,063,000
Credit interest income P
D. 63,000
SOLUTION:
Cash 6,063,000
Interest Expense 87,000
Liability for Note Receivable Discounted 6,000,000
Instructions:
Select the best answer among the given choices. Write your answer on the space provided before each number. Use only
CAPITAL LETTERS.
C 1. The accounts receivable balance consists of a debit balance of P 12,000 from Juan and a credit balance of P
2,000 from Peter. What is the Accounts Receivable balance to be reported in the Statement of Financial
Position?
A. P 10,000
B. P 14,000
C. P 12,000
D. P 8,000
B 2. Using the same information in number (6), what amount is to be reported as current liability?
A. P 10,000
B. P 2,000
C. P 12,000
D. P 0
A 3. Using the same information in number (1), if the general ledger balance of Accounts Receivable is P 10,000,
what would be the necessary adjusting journal entry?
A. Debit – Accounts Receivable, P 2,000; Credit – Customers’ Account with Credit Balances, P 2,000.
B. Debit – Accounts Receivable, P 2,000; Credit – Allowance for Doubtful Accounts, P 2,000.
C. Debit – Customers’ Account with Credit Balances, P 2,000; Credit – Accounts Receivable, P 2,000.
D. No adjusting journal entry is necessary.
D 4. Using the same information in number (1), if the ledger balance of Accounts Receivable is P 12,000, what
would be the necessary adjusting journal entry?
A. Debit – Accounts Receivable, P 2,000; Credit – Customers’ Account with Credit Balances, P 2,000.
B. Debit – Accounts Receivable, P 2,000; Credit – Allowance for Doubtful Accounts, P 2,000.
C. Debit – Customers’ Account with Credit Balances, P 2,000; Credit – Accounts Receivable, P 2,000.
D. No adjusting journal entry is necessary.
D 5. Goods were sent to SM Stores under consignment contract at billed price of P 100,000. Which of the
following is correct?
A. The accounts receivable must be debited for P 100,000
B. The accounts receivable must be credited for P 100,000
C. The Consignment Receivable account must be debited for P 100,000.
D. No receivable account is to be recognized.
B 6. The recovery of accounts previously written off would

I. Increase the allowance for doubtful accounts
II. Have no effect on accounts receivable
III. Decrease the net realizable value of accounts receivable
A. I and II only
B. I, II and III
C. II and III only
D. III only
A 7. Using the allowance method of accounting for doubtful accounts, if a collection is made on account previously
written off as uncollectible,
A. Recharge the customer’s account first with the amount collected and then record its collection.
B. Record only its collection without recharging the customer’s account with the amount collected.
C. Recharge the customer’s account and simultaneously recognized income.
D. Record the collection by debiting cash and crediting income.
D 8. Which is correct regarding the Direct Write-off method of accounting for doubtful accounts?
I.
It recognized loss on accounts receivable when the account is proved to be worthless or uncollectible.
II. It used the account Allowance for Doubtful Accounts.
III. This is acceptable for financial accounting purposes.
IV. It properly reports accounts receivable at net realizable value.
A. I and II only
B. I, II and III only
C. I, II, III and IV
D. I only
C 9. Which is correct regarding Allowance Method of accounting for doubtful accounts?

I. It recognized losses on accounts receivable if there is doubtful of collection.
II. It used the account Allowance for Doubtful Accounts
III. This is acceptable for tax purposes.
IV. It properly reports accounts receivable at net realizable value.
A. I and II only
B. I, II, III and IV
C. I, II and IV only
D. II and IV only
B 10. Which of the following statements is correct?

I. The difference between the face value of noninterest-bearing notes receivable and its present value is
the unearned interest income.
II. The difference between the face value of noninterest-bearing long-term notes receivable and
Unearned Interest Income is called the carrying amount of notes receivable.
III. The prevailing market rate is the effective interest rate used in accounting for noninterest-bearing
long-term notes receivable.
A. I and II only
B. I, II and III
C. II and III only
D. I and III only
B 11. Which of the following is NOT an objective evidence of impairment of a financial asset?
A. Significant financial difficulty of the issuer or obligor.
B. A decline in the fair value of the asset below its previous carrying amount.
C. A breach of contract, such as a default or delinquency in interest payment 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.
A 12. If there is evidence that an impairment loss on loan receivable has been incurred, the loss is equal to the
A.
Excess of the carrying amount of the loan receivable over the present value of the cash flows related
to the loan.
B. Excess of the of cash flows related to the loan over the carrying amount of the loan receivable.
C. Excess of the carrying amount of the loan over the principal amount of the loan.
D. Excess of the principal amount of the loan over its carrying amount.
D 13. Which statement is incorrect regarding the general approach of applying the impairment requirements of PFRS 9?
A. At each reporting date, an entity recognizes a loss allowance based in either 12-months ECLs or
lifetime ECLs depending on whether there has been a significant increase in credit risk on the financial
instrument since initial recognition.
B. If the credit risk increases significantly and the resulting credit quality is not considered to be low
credit risk, full lifetime expected credit losses are recognized.
C. When the entity has no reasonable expectations of recovering the financial asset, then the gross
carrying amount of the financial asset should be directly reduced in its entirety.
D. Increases in the loss allowance balance are recognized in profit or losses as an impairment loss but
decreases are not recognized.
C 14. The practice of realizing cash from trade receivables prior to maturity date is widespread. Which term is not
associated with this practice?
A. Hypothecation
B. Factoring
C. Defalcation
D. Discounting
C 15. When the accounts receivable are sold outright, the accounts receivable have been
A. Pledged
B. Assigned
C. Factored
D. Collateralized
MCQ PROBLEM - SET 1

Presented below are a series of unrelated situations. Answer the following questions relating to each of the independent
situations as requested.
1. Bantay Company's unadjusted trial balance at December 31, 2020, included the following accounts:
Debit Credit
Accounts Receivable 1,000,000
Allowance for doubtful accounts 40,000
Sales 15,000,000
Sales returns and allowances 700,000
Bantay Company estimates its bad debt expense to be 1 1/2% of net sales. Determine its bad debt expense for
2020.
A. P 225,000
B. P 214,500
C. P 254,500
D. P 55,000
SOLUTION:
Sales 15,000,000
Less: Sales Returns and Allowances 700,000
Net
Sales 14,300,000
Multiply by bad debts rate 1-1/2%
Bad debts expense for 2020 214,500
2. An analysis and aging of Burgos Corporation's accounts receivable at December 31, 2020, disclosed the following:
Amounts estimated to be uncollectible 1,800,000

Accounts receivable 17,500,000
Allowance for doubtful accounts (per books) 1,250,000
What is the net realizable value of Burgos’ receivables at December 31, 2020?
A. P 15,700,000
B. P 16,250,000
C. P 17,500,000
D. P 14,450,000
SOLUTION:
Less: Amount estimated to be uncollectible 1,800,000 adjusted balance of ADA
Net realizable value 15,700,000
Notes:
Allowance for doubtful accounts (per books) of P 1,250,000 is the unadjusted balance.
3. Cabugao Company provides for doubtful accounts based on 3% of credit sales. The following data are available
for 2020:
Credit sales during 2020 21,000,000

Allowance for doubtful accounts January 1, 2020 170,000
Collection of accounts written off in prior years (Customer credit was re-established) 80,000
Customer accounts written off as uncollectible during 2020 300,000
What is the balance in allowance for doubtful accounts at December 31, 2020?
A. P 630,000
B. P 500,000
C. P 420,000
D. P 580,000
Allowance for DA
SOLUTION: Debit Credit
Allowance for doubtful accounts 1/1/2020 170,000 170,000
Related transactions during the year 2020:
Establishment of accounts written off in prior years 80,000 80,000
Customer accounts written off in 2020 (300,000) 300,000
Bad debt expense for 2020 (P 21,000,000 X 3%) 630,000 630,000
Allowance for doubtful accounts 12/31/2020 580,000 300,000 880,000
580,000 Allowance for doubtful accounts 12/31/2020

4. At the end of its first year of operations, December 31, 2020, Cauayan, Inc reported the following information:
Accounts receivable, net of allowance for doubtful accounts 9,500,000 This is the NRV (AR - ADA)
Customer accounts written off as uncollectible during 2020 240,000
Bad debts expense for 2020 840,000
What should be the balance in accounts receivable at December 31, 2020, before subtracting the allowance for
doubtful accounts?
A. P 10,100,000
B. P 9,740,000
C. P 10,340,000
D. P 10,580,000
SOLUTION:
Allowance for doubtful accounts, 1/1/2020 (first year of operations) 0
Bad debt expense for 2020 840,000
Less: Customer accounts written off as uncollectible during 2020 240,000
Allowance for doubtful accounts, 12/31/2020 600,000
Accounts receivable, net of allowance for doubtful accounts 9,500,000 This is the NRV (AR - ADA)
Add: Allowance for doubtful accounts, 12/31/2019 (See above computation) 600,000
Accounts receivable, before deducting allowance for doubtful accounts 10,100,000
Notes:
Year 2020 is the first year of operations, therefore, no beginning balance of Allowance for Doubtful accounts.
Allowance for D/A

Debit Credit
Accounts written off in 2020 240,000 0 January 1, 2020 beginning balance
840,000 Bad debts expense in 2020 (given)
240,000 840,000
600,000 December 31, 2020 ending balance

5. The following accounts were taken from Cervantes Inc,'s statement of financial position at December 31, 2020:
Debit Credit
Net credit sales 7,500,000
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2020:
A. P 123,000
B. P 223,000
C. P 23,000
D. P 225,000
SOLUTION:
Multiply by bad debts rate 3%
Allowance for doubtful accounts adjusted 123,000
Add: Allowance for doubtful accounts (debit balance) - unadjusted 100,000
Bad debt expense for 2020 223,000
Allowance for D/A

Debit Credit
Unadjusted balance, 12/31/2020 100,000 223,000 Bad debt expense for 2020
123,000 12/31/2020 balance (P 4,100,000 x 3%)

6. Based on the aging of its accounts receivable at December 31, Mardoff Company determined that the net realizable value of the
receivables at that date is P 1,520,000. Additional information is as follows:
Accounts Receivable at December 31 1,760,000

Allowance for bad debts at December 31 (unadjusted) 56,000 (cr.)
Dudikoff's Bad Debt Expense for the year ended December 31 is

A. P 160,000
B. P 296,000
C. P 184,000
D. P 56,000
SOLUTION:
Less: Net Realizable value of AR at December 31 1,520,000
Allowance for dad debts at December 31, adjusted 240,000
Less: Allowance for dad debts at December 31, unadjusted 56,000 (cr.)
Bad debts expense for the year ended December 31 184,000
Allowance for D/A

Debit Credit
56,000 Unadjusted balance, December 31
184,000 Bad debt expense for 2020 (WORKBACK PROCEDURE)
240,000 December 31 balance (P 1,760,000 - P 1,520,000)
7. Based on the aging of its accounts receivable at December 31, Krisoff Company determined that the net realizable value of the
receivables at that date is P 3,040,000. Additional information is as follows:

Allowance for bad debts at December 31 (unadjusted) 112,000 (dr.)
Dudikoff's Bad Debt Expense for the year ended December 31 is
A. P 320,000
B. P 592,000
C. P 368,000
D. P 112,000
SOLUTION:
Less: Net Realizable value of AR at December 31 3,040,000
Allowance for dad debts at December 31, adjusted 480,000
Add: Allowance for bad debts at December 31, unadjusted 112,000 (dr.)
Bad debts expense for the year ended December 31 592,000
Allowance for D/A

Debit Credit
Unadjusted balance, December 31 112,000 592,000 Bad debt expense for 2020 (WORKBACK PROCEDURE)
480,000 December 31 balance (P 3,520,000 - P 3,040,000)
8. Carlson Corporation had sales of P 2,000,000 during 2021, of which 20 percent were on cash basis. On December 31, 2021,
Accounts Receivable totaled P 160,000 and Allowance for Bad Debts had a debit balance of P 2,400. Given this information, if
uncollectible receivables are estimated to be 3 percent of accounts receivable, the adjusting entry as of December 31, 2021, to
account for bad debts would include a
A. debit to Bad Debt Expense of P 4,800
B. credit to Allowance for Bad Debts of P 4,800.
C. debit to Bad Debt Expense of P 7,200
D. debit to Bad Debt Expense of P 2,400
SOLUTION:
Accounts receivable, December 31, 2021 160,000
Multiply by Doubtful Accounts Rate 3%
Allowance for doubtful accounts, December 31, 2021, adjusted 4,800
Add: Allowance for doubtful accounts, 12/31/2021, unadjusted 2,400 (dr.)
Adjusting journal entry:

Bad debts expense 7,200
Allowance for Bad Debts 7,200
9. You have just analyzed customers' accounts receivable through an "aging" process and have determined that P 9,000 of the
accounts receivable are probably uncollectible. Noting that your trial balance shows an Allowance for Bad Debts with a debit
balance of P 300, what is the correct adjusting entry?
A. Allowance for Doubtful Accounts 9,300
Doubtful Accounts Expense 9,300
B. Doubtful Accounts Expense 8,700
C. Allowance for Doubtful Accounts 9,000
D. Doubtful Accounts Expense 9,300
SOLUTION:
Allowance for Bad debts, adjusted (per aging) 9,000
Add: Allowance for doubtful accounts, unadjusted 300 (dr.)

10.
You have just analyzed customers' accounts receivable through an "aging" process and have determined that P 9,000 of the
accounts receivable are probably uncollectible. Noting that your trial balance shows an Allowance for Bad Debts with a credit
balance of P 300, what is the correct adjusting entry?
A. Allowance for Doubtful Accounts 9,300
B. Doubtful Accounts Expense 8,700
C. Allowance for Doubtful Accounts 9,000
D. Doubtful Accounts Expense 9,300
SOLUTION:
Allowance for Bad debts, adjusted (per aging) 9,000
Less: Allowance for doubtful accounts, unadjusted 300 (cr.)

MCQ PROBLEM - SET 2

The adjusted trial balance of Galimuyod Company as of December 31, 2019 shows the following:
Debit Credit
Additional Information:
A. Cash sales of the company represent 10% of gross sales.
B. 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
C. It is expected that cash discount of P 6,000 will be taken on accounts receivable outstanding at December 31,
2020.
D. Sales returns in 2020 amounted to P 400,000. All returns were from charge sales.
E. During 2020, accounts totalling to P 44,000 were written off as uncollectible; bad debt recoveries during the year
amounted to P 3,000.
F. The allowance for bad debts is adjusted so that it represents certain percentage of the outstanding accounts
receivable at year end. The required percentage at December 31, 2020 is 150% of the rate used on December 31,
2019.
QUESTIONS:
1. The accounts receivable as of December 31, 2020 is:
A. P 3,000,000
B. P 333,000
C. P 300,000
D. P 2,444,000
SOLUTION:
Expected cash discounts 6,000 (refer to additional information C)
Divide by percentage of cash discount 0.02 (refer to additional information B - 2/10 term)
Portion of AR that will be granted cash discounts 300,000
Divide by percentage of total AR estimated to take advantage of the discount 0.10 (refer to additional information B - 90% do nate take advantage of discount)
Accounts receivable, 12/31/2020 3,000,000
2. The allowance for doubtful accounts as of December 31, 2020 is:

A. P 20,000
B. P 180,000
C. P 120,000
D. P 146,640
SOLUTION:
Accounts receivable, 12/31/2020 (Requirement 1) 3,000,000
Multiply by bad debt rate [(P40,000/P1,000,000) x 1.5] 0.06
Allowance for doubtful accounts, 12/31/2020 180,000
Notes:
DA rate in year 2019 based on accounts receivable is 4% (P 40,000 ADA adjusted balance / P 1,000,000 AR balance).
DA rate to be used in year 2020 is 150% of the year 2019 DA rate as stated in additiona information F.
Therefire, DA rate for the year 202 os 6% (4% x 150%).
3. The net realizable value of accounts receivable as of December 31, 2020 is:
A. P 307,340
B. P 2,874,000
C. P 2,814,000
D. P 2,291,360
SOLUTION:
Accounts receivable, 12/31/2020 3,000,000
Less: Allowance for doubtful accounts (no. 2) 180,000
Allowance for sales discounts (info. C) 6,000 186,000
Net realizable value, 12/31/2020 2,814,000
Notes:
It is stated in transaction letter (c) that it is expected that cash discount will be taken. Therefore, an allowance
for sales discount will be set up as computed in Question (1) which is P 6,000.
No allowance for sales returns will be set up because actual sales returns are directly charged to accounts
receivable as stated in Transaction (D).
4. The doubtful accounts expense for the year 2020 is:

A. P 181,000
B. P 21,000
C. P 121,000
D. P 147,640
SOLUTION:
Allowance for doubtful accounts, 12/31/2020 (req. 2) 180,000
Add: Accounts written off (info E) 44,000
Total 224,000
Less: Allowance for doubtful accounts, 12/31/2019 (given) 40,000
Bad debts recoveries (info E) 3,000 43,000
Allowance for D/A

Debit Credit
Accounts written-off in 2020 44,000 40,000 January 1, 2020 balance (given)
3,000 Bad debts recoveries (info E)
181,000 Doubtful accountse expense in 2020
180,000 December 31, 2020 balance (req. 2)
STRAIGHT PROBLEM 1 (PHILCPA Adapted)

At the beginning of current year, Rampant Company reported that the allowance for doubtful accounts has a credit
balance of P 170,000.
Bad debts recoveries and bad debts written off in the current year were P 30,000 and P 235,000, respectively.
The allowance account had been previously calculated as a percentage of sales.
It was decided, however, to provide doubtful accounts commencing with the year-end adjusting entry on the basis of
an analysis of the age of the receivables.
The following schedule was prepared:

%
Uncollectible
Not yet due 1,700,000 NIL
1-30 days past due 1,200,000 5
31-60 days past due 100,000 25
6i to 90 days past due 150,000 50
Over 90 days past due 120,000 100
Additional accounts to be written off 30,000
Required:
1) What is the required allowance for doubtful accounts at year-end?
2) How much would be the doubtful accounts expense for the current year?
3) What is the adjusting entry for the doubtful accounts expense for the current year?
4) What is the net realizable value of accounts receivable at year-end?
SOLUTION:
1) What is the required allowance for doubtful accounts at year-end?
% ADA,
Uncollectible adjusted
Not yet due 1,700,000 NIL 0
1-30 days past due 1,200,000 5% 60,000
31-60 days past due 100,000 25% 25,000
6i to 90 days past due 150,000 50% 75,000
Over 90 days past due 120,000 100% 120,000
Required ADA at year-end 280,000
2) How much would be the doubtful accounts expense for the current year?
Allowance for DA
Debit Credit
Allowance for doubtful accounts, beginning 170,000
Bad debts recoveries during the year 30,000
Recoveries during the year 235,000
Provision for doubtful accounts expense 345,000
Allowance for doubtful accounts, ending (adjusted) 280,000

ALTERNATIVE SOLUTION USING FORMULA:
Allowance for doubtful accounts, ending (adjusted) 280,000
Recoveries during the year 235,000
Bad debts recoveries during the year (30,000)
Allowance for doubtful accounts, beginning (170,000)
Provision for doubtful accounts expense 345,000
3) What is the adjusting entry for the doubtful accounts expense for the current year?
Account Names Debit Credit

Allowance for Doubtful
Accounts 345,000
4) What is the net realizable value of accounts receivable at year-end?
Accounts receivable, end of year

Not yet due 1,700,000
1-30 days past due 1,200,000
31-60 days past due 100,000
6i to 90 days past due 150,000
Over 90 days past due 120,000 3,270,000
Less: Allowance for doubtful accounts, adjusted 280,000
Net realizable value at year end 2,990,000
STRAIGHT PROBLEM 2 (AICPA Adapted)

From inception of operatyions, Savvy Company carried no allowance for doubtful accounts.
Uncollectible receivables were expensed as written off and recoveries were credited to income as collateral.
During the current year, management recognized that the accounting policy with respect to doubtful accounts was not
correct, and determined that an allowance for doubtful accounts was necessary.
A policy was established to maintain an allowance for doubtful accounts based on historical bad debts loss percentage
applied to year-end accounts receivable.
The historical bad debtsl loss percentage is to be recomputed each year based on all available past years up to a
maximum of five years.
Accounts
Year Credit Sales written off Recoveries
2017 1,500,000 15,000 0
2018 2,200,000 40,000 2,000
2019 3,000,000 50,000 3,000
2020 3,300,000 65,000 5,000
2021 4,000,000 88,000 10,000
Accounts receivable balance were P 1,250,000 and P 2,000,000 on January 1, 2021 and December 31, 2021,
respectively.
Required:
1) Prepare journal entry to set-up the allowance for doubtful accounts on January 1, 2021.
2) Compute the doubtful accounts expense for the current year.
3) Determine the net realizable value of accounts receivable on December 31, 2021.
SUPPORTING ANALYSIS:
Savvy Company is using the Direct write-off in prior years because it is stated in the problem that uncollectible
receivables were expensed as written off and recoveries were credited to income as collected.
In establishing the allowance for doubtful accounts during the year 2021, it is stated in the problem that the basis is the
year-end accounts receivable. This refers to December 31, 2020 accounts receivable which is also the January 1, 2021
accounts receivable balance of P 1,250,000.
It is also stated in the problem that the doubtful accounts percentage to be used in year 2021 in establishing the
allowance for doubtful accounts is based on past years experience up to a amximum of five years. In the problem, the
current year is year 2021 and the available past years given include years 2020, 2019, 2018, and 2017, or four years.
Therefore, the doubtful accounts rate based on these past four years can be computed as follows:
Accounts Accounts
Year Credit Sales written off Recoveries Year Credit Sales written off Recoveries
2017 1,500,000 15,000 0 2017 1,500,000 15,000 0
2018 2,200,000 40,000 2,000 2018 2,200,000 40,000 2,000
2019 3,000,000 50,000 3,000 2019 3,000,000 50,000 3,000
2020 3,300,000 65,000 5,000 2020 3,300,000 65,000 5,000
Total 10,000,000 170,000 10,000 2021 4,000,000 88,000 10,000
Total 14,000,000 258,000 20,000
Total accounts written off 170,000 Total accounts written off 258,000
Less: Recoveries 10,000 Less: Recoveries 20,000
Net write-off (actual bad debts) 160,000 Net write-off (actual bad debts) 238,000
Divide by credit sales 10,000,000 Divide by credit sales 14,000,000
Doubtful accounts rate for 2020 1.6% Doubtful accounts rate for 2021 1.7%
SOLUTION:
1) Journal entry to set-up the allowance for doubtful accounts on January 1, 2021.
Account Names Debit Credit
Retained Earnings 20,000

Supporting computation:
Accounts receivable, January 1, 2021 1,250,000
Multiply by doubtful accounts rate (past 4 years) 1.6%
Allowance for doubtful accounts, January 1, 2021 20,000
Notes:
The debit entry is the Retained Earnings account because the setting up of ADA is actually for December 31,
2020. The doubtful accounts expense that is supposed to be the account to be debited is a real account and
already closed to Retained Earnings at December 31, 2020. This account and its balance is forwarded to the next
accounting period as the beginning balance.
2) Computation of the doubtful accounts expense for the current year.

During the year 2021:
Accounts written off (88,000)
Recovery of accounts written off 10,000
Allowance for doubtful accounts, December 31, 2021, unadjusted (58,000)
Less: Allowance for doubtful accounts, December 31, 2021, adjusted
Accounts receivable, December 31, 2021 (given) 2,000,000
Multiply by doubtful accounts rate for 2021 1.7% 34,000
ALTERNATIVE SOLUTION USING T-ACCOUNT:
Allowance for DA
Debit Credit
Accounts written off 88,000
Recovery of accounts written off 10,000
Provision for doubtful accounts for the year 2021 92,000
Allowance for doubtful accounts, January 1, 2021 34,000 (P 2,000,000 x 1.7%)
3) Net realizable value of accounts receivable on December 31, 2021.
Accounts receivable, December 31, 2021 2,000,000

Less: Allowance for doubtful accounts, december 31, 2021, adjusted 34,000
Net realizable value, december 31, 2021 1,966,000

From inception of operations, Comprehensive Company provided for uncollectible accounts expense under the
allowance method using the percentage of sales method.
No year-end adjustments to the allowance for doubtful accounts were made.
The balance in the allowance for doubtful accounts was P 1,000,000 on Januay 1, 2021.
During the current year, credit sales totaled P 20,000,000, interim provisions for doubtful accounts were made at 2% of
credit sales, bad debts of P 200,000 were written off, and recoveries of accounts previously written off amounted to P
50,000.
An aging of accounts receivable was made for the first time on december 31, 2021:
Aging Balance Uncollectible

0 - 60 6,000,000 10%
61 - 180 2,000,000 20%
181 - 360 1,500,000 30%
Over 360 500,000 50%
Based on the review of collectibility of the account balances in the "over 360 days" aging category, additional accounts
totaling P 100,000 are to be written off on December 31, 2021.
Effective wit the year ended december 31, 2021, the entity adapted a new accounting method for estimating the
allowance for doubtful accounts at the amount indicated by the year-end aging of accounts receivable.
QUESTIONS:
1. What is the balance of the allowance for doubtful accounts on December 31, 2021 before adjustment?
A. p 1,100,000
B. P 1,150,000
C. P 1,250,000
D. P 1,200,000
SOLUTION:
Allowance for doubtful accounts, January 1, 2021 1,000,000
Interim provision for doubtful accounts
Accounts written off during the year (200,000)
Recovery of accounts previously written off 50,000
Additional accounts written off from over 360 days past due (100,000)
Allowance for doubtful accounts, December 31, 2021, unadjusted 1,150,000
2. What is the required allowance for doubtful accounts on December 31, 2021?
A. P 1,650,000
B. P 1,950,000
C. P 1,700,000
D. P 1,450,000
SOLUTION:
Allowance for doubtful accounts, 12/31/2021, adjusted
Age of AR Balance Uncollectible ADA, adjusted

0 - 60 6,000,000 10% 600,000
61 - 180 2,000,000 20% 400,000
181 - 360 1,500,000 30% 450,000
Over 360 400,000 50% 200,000
1,650,000
Notes:
Over 360 days past due is P 400,000 because of additional write off from this group.
P 500,000 original balance - P 100,000 additional write-off = P 400,000 as adjusted balance.
3. What amount should be reported as doubtful accounts expense for the current year?
A. P 1,200,000
B. P 1,650,000
C. P 900,000
D. P 950,000
SOLUTION:
Allowance for doubtful accounts, December 31, 2021, adjusted 1,650,000
Less: Allowance for doubtful accounts, December 31, 2021, unadjusted 1,150,000
Doubtful accounts expense for the current year 2021 based on aging 500,000 AJE
Add: Doubtful accounts expense as interim provision based on credit sales
Doubtful accounts expense for the current year 2021 900,000
4. What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2021?
A. P 900,000 debit
P 900,000
B. credit
C. P 500,000 debit
P 500,000
D. credit
SOLUTION:
Doubtful Accounts expense 500,000
5. What is the net realizable value of accounts receivable on December 31, 2021?
A. P 9,900,000
B. P 8,250,000
C. P 8,350,000
D. P 8,200,000
SOLUTION:
Age of AR Balance
0 - 60 6,000,000
61 - 180 2,000,000
181 - 360 1,500,000
Over 360 400,000
AR, December 31, 2021 9,900,000
Less: ADA, December 31, 2021, adjusted 1,650,000
Net Realizable Value of AR, 12/31/2021 8,250,000

Sky Company provided the following information at year-end:
Year 2021 Year 2020

Accounts receivable 880,000 800,000
Allowance for doubtful accounts (10,000) (15,000)
Allowance for sales returns (20,000) (25,000)
Net realizable value 850,000 760,000
The entity reported doubtful accounts expense in 2020 of P 30,000 and had products returned for credits totaling P
15,000 at sale price. Gross sales for 2021 amounted to P 6,150,000.
QUESTIONS:
1. What amount of accounts receivable was written off during 2021?
A. P 35,000
B. P 30,000
C. P 15,000
D. P 10,000
SOLUTION:
Allowance for DA
Debit Credit
Accounts written-off during 2021 35,000
Provision for DAE in 2021 30,000
ADA, January 1, 2021 balance 15,000
Add: Accounts written off in 2021 30,000
Total 45,000
Less: ADA, December 31, 2021 10,000
Accounts written off in 2021 35,000
2. What amount was collected from customers during 2021?

A. P 6,035,000
B. P 6,070,000
C. P 6,020,000
D. P 6,100,000
SOLUTION:
Accounts Receivable
Debit Credit
Sales returns during the year 2021 15,000
Accounts receivable, January 1, 2021 balance 800,000
Add: Gross sales during 2021 (credit sales) 6,150,000
Total 6,950,000
Less: Sales returns during the year 2021 15,000
AR, December 31, 2021 balance 880,000 930,000
3. What amount was recorded as estimated sales returns during 2021?

A. P 10,000
B. P 15,000
C. P 20,000
D. P 5,000
SOLUTION:
Allowance for Sales Returns
Debit Credit
January 1, 2021, balance 25,000
Actual sales returns in 2021 15,000
Estimated sales returns in 2021 10,000 To Income Statement
December 31, 2021, balance 20,000
Allowance for sales returns, 12/31/2021 20,000
Add: Actual sales returns in 2021 15,000
Total 35,000
Less: Allowance for sales returns, 1/1/2021 25,000
Estimated sales returns during 2021 10,000 To Income Statement
4. What amount was reported as net sales for 2021?

A. P 6,150,000
B. P 6,140,000
C. P 6,100,000
D. P 6,135,000
SOLUTION:
Less: Estimated sales returns during 2021 10,000
Net sales for 2021 6,140,000

Answer Key To Related Multiple Choice Theory Questions:: D. None of These

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Answer Key To Related Multiple Choice Theory Questions:: D. None of These

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ANSWER KEY TO RELATED MULTIPLE CHOICE THEORY QUESTIONS:

D 1. The category "trade receivables" includes

D 2. Which of the following should be recorded in Accounts Receivable?

D 7. Which of the following transactions is not a common source of receivables?

C 8. Long-term receivables from subsidiaries and affiliates should be classified as

C 9. Which of the following is normally reported as current asset?

D 11. The category "trade receivables" includes

D 12. Which of the following should be recorded in accounts receivable?

ANSWER KEY TO SITUATION 2

C 1. Net realiazable means

ANSWER KEY TO RELATED MULTIPLE CHOICE THEORY QUESTIONS:

C 4. Doubtful accounts rate times credit sales equals

C 8. Estimating doubtful accounts based on credit sales

ANSWER KEY TO Related Multiple Choice Problems

3. What is the maturity value of notes receivable?

A. Credit - Accounts Receivable, P 103,000

Accounts receivable of P 4,600,000, net of P 500,000 allowance for doubtful accounts

Supporting computation - Interest Receivable at december 31, 2021:

2. What amount should be reported as doubtful accounts expense for 2022?

Supporting computation for AR balance at 12/31/2022:

ANSWER KET TO SITUATION 3 (Multiple Choice Questions - Problems)

Based on the foregoing information, answer the following questions:

Based on the foregoing information, answer the following questions:

ANSWER KEY TO SITUATION 3 (Multiple Choice Questions - Problems)

2. What is the discount on notes receivable at January 1, 2021?

4. What is the carrying value of notes receivable at December 31, 2021?

2. What is the discount on notes receivable at January 1, 2021?

2. What is the discount on notes receivable at January 1, 2021?

3. What is the gain (loss) on sale of equipment on January 1, 2021?

5. What is the carrying value of notes receivable at December 31, 2021?

MCQ PROBLEM - SET 3 (AICPA Adapted)

No year-end adjustments to the allowance for doubtful accounts were made.

Aging Balance Uncollectible

Age of AR Balance Uncollectible ADA, adjusted

MCQ PROBLEM - SET 4 (AICPA Adapted)

Year 2021 Year 2020

December 31, 2021 balance 10,000

2. What amount was collected from customers during 2021?

December 31, 2021 balance 880,000

3. What amount was recorded as estimated sales returns during 2021?

December 31, 2021, balance 20,000

Periods PV of 1 at 10% PV of OA 1 at 10%

What amount should be reported as sales revenue?

Periods PV of 1 at 10% PV of OA 1 at 10%

On December 31, 2020, what is the carrying amount of notes receivable?

The market interest rate for similar notes was 8%.

PV of 1 at 8% for 5 periods 0.68

2. What amount of interest should be reported for 2020?

Yr. Date Collection Interest Principal PV

2. What is the gain on sale of equipment to be recognized in 2020?

3. What amount of interest income should be recognized for 2021?

Yr. Date Collection Interest Principal PV

Principal amount 5,000,000

2. What is the interest income for 2020?

Present valueof 1 at 8%:

2. What is the interest income for 2021?

2. What is the interest income for 2021?

Allowance for Loan Impairment, 12/31/2020* 2,370,000

* Allowance for loan Impairment, unadjusted, 12/31/2020 3,450,000

The relate djournal entry on December 31, 2020 is:

The related journal entry is:

2. What is the Interest Income for 2021?