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Term Exam 2edited Answer Key
Term Exam 2edited Answer Key
Term Exam 2edited Answer Key
Below are the different receivable accounts and basis of measurement of each account of
“RCA Company”:
Current Cost Present Value Face Value Realizable value
Interest bearing long-term rec.(unreasonable) 3,000,000 2,100,000 5,200,000 2,100,000
Non-interest-bearing long-term receivables 3,000,000 2,800,000 3,100,000 2,900,000
Problem 2. The following items are included the trial balance of Black Bulls Company.
Problem 4. AGB Company provided for doubtful accounts expense monthly at 5% of credit sales. The
balance in the allowance for doubtful accounts was ₱2,000,000 on January 1, 2021.
During 2021, credit sales totaled ₱20,000,000, interim provisions for doubtful accounts were made at
5% of credit sales, ₱200,000 accounts were written off, and recoveries of accounts previously written off
amounted to ₱50,000.
7,000,000
4. What amount should be reported as doubtful accounts expense for the current year? 350,000
5. What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2021?
650,000 debit
6. What is the carrying amount of accounts receivable on December 31, 2021? 4,800,000
Problem 5. On December 31, 2021, The Archer Company sold used equipment with carrying amount of
₱2,000,000 in exchange for a noninterest bearing note of ₱5,000,000 requiring ten annual payments of
₱500,000. The first payment was made on December 31, 2022.
The market interest for similar note was 12%. The present value of an ordinary annuity of 1 at 12% is
5.65 for ten periods and 5.33 for nine periods.
7. What is the carrying amount of the note receivable on December 31, 2022? 2,664,000
9. What is the carrying amount of the note receivable on December 31, 2024? 2,281,721.6
Problem 6. On January 1, 2021, BB Company sold an equipment costing 700,000 which had a carrying
amount of 250,000, receiving a 125,000 down payment and, as additional consideration, a 400,00
noninterest bearing due on January 1,2024. There was no established exchange price for the equipment,
and the note had no ready market. The prevailing rate of interest for a note of this type on January 1,
2021 was 12%. The present value of 1 at 12% for three periods is .7118.
2. Nontrade receivables are classified as current assets only if they are reasonably expected to be
realized in cash
a. Within one year or within the operating cycle whichever is shorter
b. Within one year or within the operating cycle whichever is longer
c. Within one year, the length of the operating cycle, notwithstanding
d. Within the normal operating cycle
5. When a specific customer’s accounts receivable was written off as uncollectible but was
subsequently recovered, what will be the effect on Accounts Receivable and Allowance for
Doubtful accounts, respectively?
a. No effect, increase c. increase, no effect
b. Increase, increase d. some other answer
6. When the direct write-off method of recognizing bad debt expense is used, the entry to write off
a specific customer account would
a. Decrease accounts receivable
b. Decrease net income
c. Decrease accounts receivable and decrease net income
d. Increase accounts receivable and increase net income
7. Why is the allowance method preferred over the direct write-off method of accounting for bad
debts?
a. Determining worthless accounts under direct write-off is difficult to do
b. Allowance method is used for tax purposes
c. Estimates are used
d. Improved matching of bad debt expense with revenue
8. A method of estimating bad debts that focuses on the balance sheet rather than the income
statement is the allowance method based on
a. Aging the trade receivable accounts
b. Credit sales
c. Specific accounts receivable determined to be uncollectible
d. Direct write-off method
9. How should unearned interest included in the face amount of notes receivable be presented on
the balance sheet?
a. As a deduction from the related receivables
b. As a deferred credit
c. In the footnotes
d. As a current liability
11. Assuming that the ideal measure of short-term receivables in the balance sheet is the
discounted value of the cash to be received in the future, failure to follow this practice usually
does not make the balance sheet misleading because
a. Most short-term receivables are not interest-bearing
b. The allowance for uncollectible accounts includes a discount element
c. Most receivables can be sold to a bank of factor
d. The amount of the discount is not material
12. On October 1, 2011, a company received a one year note-receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount of the interest are
due on September 30, 2012. The interest receivable account at December 31, 2011 would
consist of the amount representing
a. Nine months of accrued interest income
b. The excess on October 2, 2011 of the present value of the note receivable over its face value
c. Three months of accrued interest
d. Twelve months of accrued interest income
13. Accounting for the interest in a noninterest bearing note receivable is an example of what
aspect of accounting theory?
a. Matching
b. Substance over form
c. Verifiability
d. Accrual basis
14. In an entity’s April 30 statement of financial position, a note receivable was reported as a
noncurrent asset and the accrued interest for eight months was reported as a current assed.
Which of the following terms would fit the entity’s note receivable
a. Principal and interest are due December 31, 2012
b. Both principal and interest are payable on December 31, 2012 and December 31, 2013
c. Both principal and interest are payable on August 31, 2012 and August 31, 2013.
d. Principal is due August 31, 2013, and the interest is due August 31, 2012 and August 31,
2013
15. On July 1, 2013, an entity obtained a two-year 8% note receivable for services rendered. At that
time, the market rate of interest was 10%. The face amount of the note and the entire amount
of interest are due on June 30, 2015. Interest receivable on December 31, 2013 is
a. 5% of the July 1, 2012 present value of the amount due on June 30 2014
b. 4% of the July 1, 2012 present value of the amount due on June 30, 2014
c. 5% of the face amount of the note
d. 4% of the face amount of the note
PRACTICAL ACCOUNTING 1
The following selected transactions occurred during the year ended December 31,2012:
At the year-end, the company provides for estimated bad debt losses by crediting the Allowance for Bad
Debts account for 2% of net credit sales
Bikko Inc. reported the following balances (after adjustment) at the end of 2013 and 2012
12/31/2013 12/31/2012
Total Accounts Receivable P105,000 P96,000
Net Accounts Receivable 102,000 94,500
During 2013, Bikko wrote off customer accounts totalling P3,200 and collected P800 on accounts
previously written off.
17. Bikko’d doubtful accounts expense for the year ending December 31,2013 is
a. P1,500 c. P3,000
b. P2,400 d. P3,900
The estimated bad debts rates below are based on Calachuchi Corps. Receivable collection experience
The following for bad debts account had a debit balance of P4000 on December 31, 2012, before
adjustment.
18. The Company’s account receivable under “61-90 days” category totalled
a. P32,600 c. P44,600
b. P44,320 d. P42,000
19. The allowance for bad debts to be reported on the balance sheet at December 31, 2012 is
a. P13,199 c. P9,699
b. P6,199 d. P9,043
20. What entry should be made on December 31, 2012, to adjust the allowance for bad debts
account?
a. Bad Debt Expense 13,699
Allowance for Bad Debts 13,699
21. Lemonade, Inc. estimates its bad debt losses by aging its accounts receivable. The aging
schedule of accounts receivable at December 31, 2013 is presented below:
Lemonade computes the year-end balance of the allowance for bad debts based in the average
loss experience for the past 5 years. Lemonade’s uncollectible account experience for the past 5
years is summarized in the following schedule:
The balance of the allowance for bad debts account at December 31, 2013 (before adjustment)
is P84, 500.
What is the NET REALIZABLE VALUE of accounts receivable at December 31, 2013?
22. During the year, McGrady Company made and entry to write-off a P 4, 000 uncollectible
account. Before this entry was made, the balance of accounts receivable was P50, 000 and the
balance in the allowance account was P4, 500. The net realizable value of accounts receivable
after the write-off entry was
a. P50, 000 b. P49, 500 c. P41, 500 d. P45, 500
23. ART Inc. made a P10, 000 sale on account with the following terms: 1/15, n/30. If the company
uses the net method to record sales made on credit, how much should be recorded as revenue?
a. P9, 800 b. P9, 900 c. P10, 000 d. P10, 100
24. Frame Co. has an 8% note receivable dated June 30, 2007, in the original amount of P150, 000.
Payments of P50, 000 in principal plus accrued interest are due annually on July 1, 2008, 2009,
2010. In its June 30, 2009 balance sheet, what amount should Frame report as a current asset
for interest on note receivable?
a. 0 b. P4, 000 c. P8, 000 d. P12, 000
25. On January 1, 2011, Ott Company sold goods to Fox Company. Fox signed a noninterest bearing
note requiring payment of P600, 000 annually for seven years. The first payment was made on
January 1, 2011. The prevailing market rate of interest for this type of note at the date of
issuance was 10%. Information of present value factors is as follows:
26. On December 27, 2011, Lily Company sold a building, receiving as consideration a P4, 000 000
noninterest-bearing note due in three years. The building had a cost of P3,800,000 and the
accumulated depreciation was P1,600,000 at the date of sale. The prevailing rate of interest for
a note this type was 12%. In its income statement, what amount of gain should Lily report on
the sale? Round PV factor to three decimal places.
a. 1,800,000 c. 200,000
b. 648,000 d. 0
27. SayonKAAYOko Co. sold some machinery to the MAObitaw Co. on January 1, 2011, for which the
cash selling price was P7, 582, 000. MAObitaw Co. entered into an instalment sale contract with
SayonKAAYOko Co. at an interest rate of 10%. The Contract required payments of P2 million a
year for over five years, with the first payment on January 1, 2011. What amount of interest
income should be included in SayonKAAYOko Co.’s 2012 using the interest method?
a. P1,000,000
b. 414,020
c. 634,020
d. 0
28. Alamo Company sold one of its factories in January 2, 2013 for seven million. Alamo received a
cash down payment of one million and a four-year, twelve percent note for the balance. The
note is payable in equal annual payments of principal and interest of P1,975,400 payable of
December 31 each year until 2016. What is the carrying amount of the note receivable of
December 31, 2013?
a. 4, 500, 000
b. 4, 744, 600
c. 4, 624, 600
d. 4, 025, 600
29. On December 31, 2011, Park Company sold used equipment and received a noninterest-bearing
note requiring payment of P500,000 annually for ten years. The first payment is was paid on
December 31, 2012 and the prevailing rate of interest for this type of note at the date of
issuance is 12%. What is the carrying amount of the note at December 31, 2013 that will be
reported at the statement of financial position? Round PV factor to 3 decimal places.
a. 1,610,000
b. 2,825,000
c. 5,000,000
d. 2,483,680
30. On June 30, 2011, Emme Company sold equipment with an original cost of 4,800,000 which was
purchased on January 1, 2010 and with an estimated useful life of 6 with no residual value. As a
consideration, Emme company received a noninterest bearing note amounting P4,000,000 due
on April 30, 2014. The prevailing market rate of interest for this type of note was 10% at the
issuance. The present value of 1 at 10% for 3 periods is 0.75.
In Emme’s income statement, at what amount should be reported as gain or loss or sale of
equipment assuming the straight line method of depreciation is used.
a. 600,000 gain
b. 600,000 loss
c. 1,000,000 gain
d. 1,000,000 loss