IA MIDTERM

1. A 180-day, 12 percent interest-bearing note receivable is sold to a bank after being held for 45
days. The proceeds are calculated using a 15 percent interest rate. The note receivable has been
a. Discounted - YES Pledged - YES
b. Discounted - NO Pledged - YES
c. Discounted - NO Pledged - NO
d. Discounted - YES Pledged – NO

2. The balance in Accounts Receivable is not reduced in recording which of the following types of
financing arrangements?
a. Transfer of accounts receivable without recourse
b. Assignment of specific accounts receivable
c. Factoring of accounts receivable
d. General assignment (pledge) of accounts receivable

3. TORANOSUKE MIYAMURA Company builds and sells equipment used in manufacturing

pharmaceuticals. On December 31, 2020, the entity reported accounts receivable as follows:

SAOIONJI Company 80,000

LEONA, Inc. 200,000
ASUKA Co. 120,000
KUROSAKI, Inc. 100,000
All other receivables 500,000
The entity determines that Saoionji Company’s receivables is impaired by P40,000 and
Kurosaki’s receivable is totally impaired. The other receivables from Asuka and Leona are not considered
impaired. The entity determines that a composite rate of 2% is appropriate to measure impairment on
all other receivables. What is the total impairment of receivables for 2020?

a. 150,000
b. 156,400
c. 123,600
d. 140,000

4. Fushigi Yugi Finance granted a 10%, 2-year P5,000,000 loan to Tamahome Company on January
1, 2015. The interest is payable every December 31 for each year during the term of the
contract. Fushigi Yugi incurred an origination cost of P328,326 but charge Tamahome Company
P150,000 as origination fee. The effective rate is now 8% after considering the origination cost
and origination fee. Due to financial difficulty, Tamahome was unable to pay the interest on
December 31, 2015, Fushigi Yugi has now considered that the loan to Tamahome Company is
now impaired. Reliable estimate shows that the projected cash flows from the loan are as
follows: P2,000,000 on December 31, 2016 and P3,000,000 on December 31, 2017. What
amount of impairment loss on the loan should Fushigi Yugi Finance recognize on December 31,
2015?
a. None
b. 668,723
c. 373,371
d. 462,963

5. On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as
collateral on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts
receivable. Pacific also assesses a 2 percent service charge on the total accounts receivable
assigned. Riva Co. is to make monthly payments to Pacific with cash collected on assigned
accounts receivable. Collections of assigned accounts during September totaled ₱260,000 less
cash discounts of ₱3,500. What amount is owed to Pacific by Riva Co. for September collections
plus accrued interest on the note to September 30?
a. ₱262,750
b. ₱264,000
c. ₱266,250
d. ₱260,000

6. An entity sells goods either on cash basis or on 6-month installment basis. On January 1, 20x1,
goods with cash price of ₱50,000 were sold at an installment price of ₱75,000. Which of the
following statements is correct?
a. The ₱20,000 difference between the cash price and installment price is recognized as interest
income on the date of sale.
b. Net receivable of ₱50,000 is recognized upon full payment of the total price.,
c. Net receivable of ₱50,000 is recognized on the date of sale.
d. Net receivable of ₱75,000 is recognized on the date of sale.

7. Spongebob Squarepants lent ₱2,000 to Squidward for one year at 10% interest, all due at
maturity. He insisted the terms of the transaction be formalized in promissory note. In this
situation
a. the maturity value of the note is ₱2,000.
b. Squidward is considered the maker of the note and records the note as a liability in his
accounting records.
c. Spongebob Squarepants is considered the maker of the note and records the note as a liability
in his accounting records.
d. Spongebob Squarepants is considered the maker of the note and records the note as an asset in
his accounting records.

8. On July 1, 2002, Cornell Corp. received a one-year note with a face value of ₱900,000 and a
stated interest rate of 15 percent in exchange for a machine with a fair value of ₱1,000,000.
Compute the effective interest rate for Cornell Corp.
a. 3.5 percent
b. 16.67 percent
c. 15.0 percent
d. 11.11 percent
9. On May 1, 2004 a company purchased a new machine which it does not have to pay for until
May 1, 2006. The total payment on May 1, 2006 will include both principal and interest.
Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied
by what time value of money factor?
a. Future value of 1
b. Present value of 1
c. Future value of annuity of 1
d. Present value of annuity of 1

10. A 90-day, 15 percent interest-bearing note receivable was immediately discounted at a bank at
12 percent. The proceeds received from the bank upon discounting would be the
a. maturity value less the discount at 15 percent.
b. face value less the discount at 12 percent.
c. face value less the discount at 15 percent.
d. maturity value less the discount at 12 percent.

11. Simpson Company held a ₱6,000, 3-month, 15 percent note. One month before maturity, it
discounted the note at 10 percent at a local bank. Approximately how much net income did
Simpson earn on the note?
a. ₱173
b. ₱52
c. ₱225
d. ₱60

12. On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as
collateral on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts
receivable. Pacific also assesses a 2 percent service charge on the total accounts receivable
assigned. Riva Co. is to make monthly payments to Pacific with cash collected on assigned
accounts receivable. Collections of assigned accounts during September totaled ₱260,000 less
cash discounts of ₱3,500. What were the proceeds from the assignment of Riva's accounts
receivable on September 1?
a. ₱625,000
b. ₱610,000
c. ₱612,500
d. ₱735,000

13. In December 31, Central Savings & Loan discounted a 3-month, ₱70,000, non-interest-bearing
note dated October 31, at 12 percent. How much is the proceeds from the discounting?
a. 69,300
b. 48,550
c. 30,380
d. 63,900
14. On January 1, 20x1, ABC Co. received a 3-year, noninterest bearing note of ₱133,100 in
exchange for land with carrying amount of ₱100,000. The note is due on December 31, 20x3.
The effective interest rate is 10%. How much is the carrying amount of the note on December
31, 20x2?
a. 100,000
b. 133,100
c. 121,000
d. 110,000

15. Which of the following factors would show the largest value for an interest rate of 12% for six
periods?
a. Present value of an ordinary annuity of 1
b. Answer cannot be determined
c. Present value of an annuity due of 1
d. Present value of 1

16. On December 31, 2020, KAREN KIMISHIMA Company received two P2,000,000 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 first note,
made under customary trade terms, is due in nine months and the second note is due in five
years. The market interest rate for similar notes on December 31, 2020 was 8%. The PV of 1 at
8% due in nine months is .944 and the PV of 1 at 8% due in 5 years is .68. On December 31,
2020, what total carrying amount should be reported for the two notes receivable?
a. 3,360,000
b. 3,248,000
c. 3,564,000
d. 3,494,400

17. Which of the following is most likely not a condition before a transfer of receivables is
accounted for as a sale?
a. The transferee has the right to pledge or exchange the transferred assets.
b. The transferred assets have been isolated from the transferor.
c. The transferor's obligation under the recourse provisions can be reasonably estimated.
d. The transferor does not maintain effective control over the assets through an agreement to
repurchase the assets before their maturity.

18. When the accounts receivable of a company are sold outright to a company that normally buys
accounts receivable of other companies without recourse, the accounts receivable have been
a. pledged.
b. transferred with recourse.
c. assigned.
d. factored.
19. On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱12,000,000
and accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a
noninterest-bearing note receivable of ₱4,000,000 due in 4 equal annual installments starting
on January 1, 20x1 and every January 1 thereafter. The prevailing rate of interest for this type of
note is 12%. How much is the carrying amount of the receivable on December 31, 20x1?
a. 2,690,051
b. 1,690,510
c. 1,594,388
d. 892,857

20. Which of the following is not objective evidence of impairment of a financial asset?
a. A breach of contract, such as a default or delinquency in interest or principal payment.
b. 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.
c. A decline in the fair value of the asset below its previous carrying amount.
d. Significant financial difficulty of the issuer or obligor.

21. On June 30, 2002, Simon Company discounted a customer's ₱180,000, 6 month, 10 percent
note receivable dated April 30, 2002. A discount rate of 12 percent was charged by the bank.
Simon's proceeds from this discounted note would be
a. ₱181,440.
b. ₱172,800.
c. ₱169,200.
d. ₱185,220.

22. On December 31, 2020, NENE ODAGIRI Bank has a 5-year loan receivable with a face value of
P6,000,000 dated January 1, 2019 that is due on December 31, 2023. Interest is payable
annually every December 31 at 9%. The borrower made the required interest payment on
December 31, 2019 but informed the bank that interest accrued at 2020 will be paid at maturity.
There is a high probability that remaining interest payments will not be paid because of financial
difficulty. The prevailing market interest rate on December 31, 2020 is 10%. The PV of 1 for 3
periods is 0.772 at 9% and 0.751 at 10%. What is the loan impairment loss on December 31,
2020?
a. 1,908,000
b. 1,491,120
c. 2,034,000
d. 1,628,460

23. Scott Company received a one-year non-interest-bearing note receivable. When the note
receivable was recorded, which of the following were debited or credited?
a. Interest Receivable - YES Discount on Note Receivable - NO
b. Interest Receivable - YES Discount on Note Receivable - YES
c. Interest Receivable - NO Discount on Note Receivable - NO
d. Interest Receivable - NO Discount on Note Receivable - YES
24. In an entity’s April 30, 2015 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 asset.
Which of the following terms would fit the entity’s note receivable?
a. Both principal and interest are payable on December 31, 2015 and December 31, 2016
b. Principal is due August 31, 2016 and interest is due August 31, 2015 and August 31, 2016
c. Both principal and interest are payable on August 31, 2015 and August 31, 2016
d. Principal and interest are due December 31, 2015

25. Nicole Company transferred loan assets with carrying amount and fair value of P100,000 to
Tristan Co. for cash amounting to P100,000. The terms of the transfer include a provision that
any individual loan could be called back but the aggregate amount of loans that could be
repurchased could not exceed P10,000. How much asset would be derecognized in the following
transaction?
a. 10,000
b. 110,000
c. 90,000
d. 100,000

26. What factor should you use for a ₱1,000 note receivable that is collectible in five annual
installments of ₱200 starting one year hence?
a. Present value of an ordinary annuity of 1
b. Present value of an annuity due of 1
c. Present value of 1
d. Any of these

27. On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱20,000,000
and accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000 and a
noninterest-bearing note receivable of ₱8,000,000 due in 4 equal annual installments starting
on December 31, 20x1 and every December 31 thereafter. The prevailing rate of interest for this
type of note is 12%. How much is the current portion of the receivable on December 31, 20x1?
a. 1,594,388
b. 1,271,036
c. 1,423,560
d. 3,380,102

28. Grant Company accepted a ₱400,000 face value, 6-month, 10 percent note dated May 15 from a
customer. On that same date Grant discounted the note at Eagle National Bank at a 12 percent
discount rate. How much cash should Grant receive from the bank on May 15?
a. ₱387,200
b. ₱400,000
c. ₱394,800
d. ₱396,000
29. A 180-day, 12 percent interest-bearing note receivable is sold to a bank after being held for 45
days. The proceeds are calculated using a 15 percent interest rate. The note receivable has been
a. Discounted: YES, , Pledged: NO,
b. Discounted: YES, , Pledged: YES,
c. Discounted: NO, , Pledged: YES,
d. Discounted: NO, , Pledged: NO,

30. Doraemon Bank granted an 8%, 3-year, P6,000,000 loan to Nubita Company on January 1, 2015.
The interest on the loan is payable every December 31. January 1, 2015. The interest on the loan
is payable every December 31. Doraemon Bank incurred P520,600 of direct origination cost but
an origination fee of P200,000 was charged against Nubita Company. The effective rate on the
loan as a result of the origination fee and cost is now 6%. What is the carrying value of the loan
on December 31, 2016 in Doraemon Bank’s accounting books?
a. 6,320,600
b. 6,219,836
c. 6,113,026
d. 6,000,000

31. Jason Co. assigned ₱1,000,000 of accounts receivable to Easy Finance Co. as security for a loan
of ₱840,000. Easy charged a 2% commission on the amount of the loan; the interest rate on the
note was 10%. During the first month, Jason collected ₱220,000 on the assigned accounts after
deducting ₱760 of discounts. Jason accepted returns worth ₱2,700 and wrote off assigned
accounts totaling ₱7,400. The amount of cash Jason received from Easy at the time of the
transfer was
a. ₱820,000.
b. ₱756,000.
c. ₱823,200.
d. ₱840,000.

32.The “amortized cost” of loan receivable is the amount at which

a. The loan receivable is measured initially minus principal repayment.
b. The loan receivable is measured initially.
c. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and the
principal maturity amount, minus reduction for impairment.
d. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and the
principal maturity amount.

33. On January 1, 20x1, ABC Co. sold a transportation equipment with a historical cost of ₱1,000,000
and accumulated depreciation of ₱300,000 in exchange for cash of ₱100,000 and a noninterest-
bearing note receivable of ₱800,000 due on January 1, 20x4. The prevailing rate of interest for
this type of note is 12%. How much is the interest income in 20x1?
a. 68,331
b. 96,000
c. 85,714
d. 76,532

34. An entity sells goods for ₱150,000 to a customer who was granted a special credit period of 1
year. The entity normally sells the goods for ₱120,000 with a credit period of one month or with
a ₱10,000 discount for outright payment in cash. How much is the initial measurement of the
receivable?
a. 130,000
b. 110,000
c. 150,000
d. 120,000

35. A 10 percent, ₱3,000, 3-month note receivable discounted at 12 percent for 2 months will result
in net proceeds of
a. ₱3,005.25.
b. ₱3,075.00.
c. ₱3,013.50.
d. ₱3,000.00.

36. The balance in Accounts Receivable is not reduced in recording which of the following types of
financing arrangements?
a. Factoring of accounts receivable
b. Transfer of accounts receivable without recourse
c. Assignment of specific accounts receivable
d. General assignment (pledge) of accounts receivable

37. Present value is

a. all of these.
b. always smaller than the future value.
c. the value now of a future amount.
d. the amount that must be invested now to produce a known future value.

38. Which of the following results to the smallest value?

a. Present value of an annuity due of 1 @12%, n=5
b. Present value of an ordinary annuity of 1 @12%, n=5
c. Present value of 1 @14%, n=5
d. Present value of 1 @12%, n=5

39. On February 1, 2004, Norton Company factored receivables with a carrying amount of ₱500,000
to Koch Company. Koch Company assessed a finance charge of 3% of the receivables and retains
5% of the receivables. Relative to this transaction, you are to determine the amount of loss on
 sale to be reported in the income statement of Norton Company for February. Assume that
Norton factors the receivables on a without recourse basis. The loss to be reported is
a. ₱0.
b. ₱15,000.
c. ₱40,000.
d. ₱25,000.

40. What factor should you use if you want to determine the value now of a ₱1,000 payment due in
three years’ time?
a. Present value of 1
b. Present value of an ordinary annuity of 1
c. Future value of 1
d. Present value of an annuity due of 1