What is imputed interest?
If there is evidence that an impairment loss on loan receivable
a. Interest based on the stated interest rate
b. Interest based on the implicit interest rate
c. Interest based on the average interest rate
d. Interest based on the bank prime interest rate
Accounting for the interest in a noninterest bearing note
receivable is an example of what accounting theory?
a. Matching
b. Verifiability
c. Substance over form
d. Form over substance At initial recognition, an entity shall measure a loan
On July 1 of the current year, an entity received a one- a. Cost
year note receivable bearing interest at the market b. Amortized cost
rate. The face amount of the note receivable and the c. Fair value
entire amount of the interest are due in one year. The d. Fair value plus transaction cost that are directly
interest receivable account would show a balance on
a. July 1 but not December 31
b.December 31 but not July 1
c. July 1 and December 31
d. Neither July nor December 31
Subsequent to initial recognition, a loan receivable shall
be measured at
a. Cost
b. Amortized cost using straight line method
c. Amortized cost using effective interest method
d. Fair value
In calculating the carrying amount of the loan receivable,
the lender adds to the principal
I. Direct origination cost
II. Indirect origination cost
III. Origination fee charged to borrower
a. I only
b. I and II only
c. I and III only
d. I, II and III
Which of the following is not an objective evidence of
impairment of a financial asset?
a. Significant financial difficulty of the issuer
b.A decline in the fair value of the financial asset below
the previous carrying amount
c. A breach of contract, such as a default or delinquency
in interest or principal payment
d. The lender for economic or legal reason relating to the
borrower’s financial difficulty, grants to the borrower a
concession that the lender would not otherwise
consider.
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 present value 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 the carrying
amount
receivable at
attributable to the acquisition of the asset
1. When a promissory note matures and is not
paid, it is said to be a:
A) Interest bearing notes receivable
B) Amortized cost
C) Dishonored note
D) Noninterest bearing notes receivable
2. When the due date of a note is stated in
months, the time factor in computing interest is
the number of months divided by 360 days.
A) True
B) False
C) Neither of the two
D) Cant be answered
3. A note is dishonored when it is not fully paid
at maturity.
A) True
B) False
C) Neither of the two
D) Cant be answered
4. The face value of a note refers to the amount
A) That can be received if sold to a factor.
B) Borrowed plus interest received at maturity
from the maker.
C) that is identified on the formal instrument of
credit.
D) Remaining after a service charge has been
deducted.
5. Initial measurement of loans receivable
A) Present value
B) Fair value
 C) Fair value plus transaction cost ANSWER: 3,216,000
D) Present value plus transaction cost
9. A 3,300,000 loan was granted to a borrower by NOAH
6. On March 1, 2020, Noemi Company borrowed P4, Bank with a nominal interest rate of 12% which is paid
000,000 from bank on a six month note carrying an every year end. The loan matures in 4 years on
interest of 12percent per annum. Accounts of P6, December 31, 2023. After considering the direct
000,000 are pledged to secure the loan. How much is origination cost and origination fees, the market rate
received by Noemi Company from its borrowing on the loan is 8%. 1,124,000 was earned as interest
transaction? income for the whole term of the loan.
A) 4,000,000
B) 3,520,000 If the origination fee was 100,000, determine the initial
C) 6,000,000 carrying cost of the loan.
D) 5,280,000
ANSWER: 3,760,000
7. The maturity value of a 90,000, 10%, 60-day note
receivable dated July 3 is
10. The cash account in the ledger of Cutie
ANSWER: 91,500 Principal X Rate X time = interest + Company shows a balance of 1,652,000 at Sept.
principal = MV 30. The bank statement, however shows a
90,000 X 10% X 60/360 = 1,500+90,000 = 91,500 balance of 2,090,000 at the same date. The only
reconciling items consist of a bank service
charge of 2,000, a large number of outstanding
8. On January 1, 2020, Hamid Company sold goods to checks totaling 590,000 and a deposit in transit.
Khaled Company. Khaled signed a noninterest-bearing What is the deposit in transit in the Sept. 30
note requiring payment of P600, 000 annually for bank reconciliation?
seven years. The first payment was made on January
1, 2020. ANSWER: 150,000

The prevailing rate of interest for this type of note at date

of issuance was 10%
PV of an ordinary annuity of I at 10% for 6 periods
4.36
PV of an ordinary annuity of I at 10% for7 periods
4.87

What amount should be recorded as sales revenue in

January 2020?
Dinsay Company had the following bank reconciliation on March 31 of the current year:
Balance per bank statement, March 31 4,650,000
Add: Deposits in transit 1,000,000
Total 5,650,000
Less: Outstanding checks 1,250,000
Balance per book, March 31 4,400,000
Data per bank statement for the month of April follow:
Deposits 6,000,000
Disbursements 5,000,000
All reconciliation items on March 31 cleared through the bank in April. Outstanding checks on April 30 totaled
P750,000 and deposits in transit amounted to P1,500,000. What is the amount of cash receipts per book in
April?

Bank receipts for April 6,000,000

Deposit in transit – March 31 (1,000,000)
Deposit in transit – April 30 1,500,000
Book receipts for April 6,500,000

Ako Bank loaned P5,000,000 to Ikaw Company on January 1, 2014. The terms of the loan require principal
payments of P1,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment is
due on January 1, 2015. Ikaw Company made the required payments during 2015 and 2016. However, during
2016 Ikaw Company began to experience financial difficulties, requiring Ako Bank to reassess the collectibility
of the loan. On December 31, 2016, Ako bank has determined that the remaining principal payment will be
collected but the collection of interest is unlikely. Ako bank did not accrue the interest on December 31, 2016.
The present value of 1 at 8% is as follows:
For one period 0.926
For two periods 0.857
For three periods 0.794
What is the loan impairment on December 31, 2016?

January 1, 2017collection (1,000,000 X 1.000) 1,000,000

January 1, 2018 collection (1,000,000 X 0.926) 926,000
January 1, 2019 collection (1,000,000 X 0.857) 857,000
Total present value of loan 2,783,000
Loan receivable 3,000,000
Present value of loan 2,783,000
Impairment loss 217,000
Entry:
Impairment loss 217,000
Allowance for loan impairment 217,000
Ako Bank loaned P5,000,000 to Ikaw Company on January 1, 2014. The terms of the loan require principal
payments of P1,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment is
due on January 1, 2015. Ikaw Company made the required payments during 2015 and 2016. However, during
2016 Ikaw Company began to experience financial difficulties, requiring Ako Bank to reassess the collectibility
of the loan. On December 31, 2016, Ako bank has determined that the remaining principal payment will be
collected but the collection of interest is unlikely. Ako bank did not accrue the interest on December 31, 2016.
The present value of 1 at 8% is as follows:
For one period 0.926
For two periods 0.857
For three periods 0.794
What is the interest income to be reported in 2017?

Solution:
Loan receivable 3,000,000
Collection on January 1, 2017 (1,000,000)
Loan receivable – January 1. 2017 2,000,000
Allowance for loan impairment (217,000)
Carrying amount – January 1. 2017 1,783,000
Interest income for 2017 (1,783,000 X 8%) 142,640

CPA Bank granted a 10-year loan to Matalino Company in the amount of P1,500,000 with a stated interest rate of
6%. Payments are due monthly and are computed to be P16,650. CPA bank incurred P40,000 of direct loan
origination cost and P20,000 of indirect loan origination cost. In addition, CPA Bank charged Matalino Company
a 4-point refundable loan origination fee.

What is the initial carrying amount of the loan receivable on the part of CPA Bank?
Solution:
Loan receivable 1,500,000
Direct origination cost 40,000
Total 1,540,000
Origination fee received from the borrower (1,500,000 X 4%) (60,000)
Carrying amount 1,480,000

CPA Bank granted a 10-year loan to Matalino Company in the amount of P1,500,000 with a stated interest rate of
6%. Payments are due monthly and are computed to be P16,650. CPA bank incurred P40,000 of direct loan
origination cost and P20,000 of indirect loan origination cost. In addition, CPA Bank charged Matalino Company
a 4-point refundable loan origination fee.

What is the initial carrying amount of the loan payable on the part of Matalino Company?

Solution:
Loan payable 1,500,000
Origination fee charged by the bank (60,000)
Carrying amount 1,440,000
On December 31 ,2016, Rose Laillote Company sold a machine to Gene Vibe Company in exchange for a
noninterest bearing not requiring ten annual payments of P100,000. Gene Vibe made the first payment on
December 31, 2016. The market rate of interest for similar notes at date of issuance was 8%. Information on
present value factors is:
Period Present value of 1 at 8%Present value of ordinary
Annuity of 1 at 8%
9 0.50 6.25
10 0.46 6.71
In the December 31, 2016 statement of financial position, what is the carrying amount of the note receivable?

Solution:
The note receivable is shown at present value on December 31, 2016.
Face value – remaining nine payments (100,000 X 9) 900,000
Present value (100,000 X 6.25) 625,000
Unearned interest income 275,000

On June 30, 2016, Angel Company sold goods for P5,000,000 and accepted the customer’s 10% one-year note in
exchange. The 10% interest rate approximates the market rate of return. What amount should be reported as
interest income for the year ended December 31, 2016?
Solution:
Interest income from July 1
to December 31, 2016
(10% X 5,000,000 X 6/12) 250,000

Davao Company is a dealer in equipment on December 31, 2016, the entity sold an equipment in exchange for
noninterest bearing note requiring five annual payments of P500,000. The first payment was made on
December 31, 2017. The market interest for similar notes was 8%. The PV of 1 at 8% for 5 periods is 0.68, the
PV of an ordinary annuity of 1 at 8% for 5 periods is 3.99.
On December 31, 2016, what is the carrying amount of the note receivable?
Solution:
Present value of note receivable
(500,000 X 3.99) 1,995,000

Davao Company is a dealer in equipment on December 31, 2016, the entity sold an equipment in exchange for
noninterest bearing note requiring five annual payments of P500,000. The first payment was made on
December 31, 2017. The market interest for similar notes was 8%. The PV of 1 at 8% for 5 periods is 0.68, the
PV of an ordinary annuity of 1 at 8% for 5 periods is 3.99.
What interest income should be reported for 2017?

Solution:
Interest income for 2017
(1,995,000 X 8%) 159,600
Davao Company is a dealer in equipment on December 31, 2016, the entity sold an equipment in exchange for
noninterest bearing note requiring five annual payments of P500,000. The first payment was made on
December 31, 2017. The market interest for similar notes was 8%. The PV of 1 at 8% for 5 periods is 0.68, the
PV of an ordinary annuity of 1 at 8% for 5 periods is 3.99.
What is the carrying amount of the note receivable on December 31, 2017?
Solution:
Note receivable – 12/31/17 (2,500,000 – 500,000) 2,000,000
Unearned interest income – 12/31/17
(2,500,000 – 1,995,000 = 505,000 – 159,600) (345,400)
Carrying amount – 12/31/17 1,654,600

Date Annual Collection Interest income Principal Present value

Dec.31, 2016 1,995,000
Dec.31, 2017 500,000 159,600 340,400 1,654,600
Dec.31, 2018 500,000 132,368 367,632 1,286,968
Dec.31, 2019 500,000 102,957 397,042 871,926
Dec.31, 2020 500,000 69,754 430,246 441,680
Dec.31, 2021 500,000 58,320 441,680 -

Bryan Company purchased from Marge Company a P20,000 8% five-year note that required five equal annual
year-end payments of P5,009. The note was discounted to yield a 9% rate to Bryan Company. At the date of
purchase, Bryan Company recorded the note at the present value of P19,485. What is the total interest
revenue earned by Bryan Company over the life of this note?
Solution:
Total payments (5,009 X 5) 25,045
Present value of the note (19,485)
Total interest revenue 5,560

Nobody Company sold a piece of machinery with a list price of P1,600,000 to Everybody Company on January 1,
2017. Everybody Company issued a noninterest bearing note of P1,700,000 due in one year. Nobody Company
normally sells this type of machinery for 90% of list price. What amount should be recorded as interest
revenue?
Solution:
Note receivable 1,700,000
Present value equal to cash price
(1,600,000 X 90%) 1,440,000
Interest revenue 260,000

In preparing the bank reconciliation on December 31, 2016, Cutie Koh Company provided for the following data:
Balance per bank statement 3,800,000
Deposit in transit 520,000
Amount erroneously credited by bank to Cutie Koh’s account 40,000
Bank service charge for December 5,000
Outstanding checks 675,000
What is the adjusted cash in bank on December 31, 2016? _____________
Solution:
Per bank statement 3,800,000
Deposit in transit 520,000
Outstanding checks (675,000)
Bank error (40,000)
Adjusted bank balance 3,605,000
Diosa Company provided the following information on December 31, 2016:
Petty cash fund 50,000
Current account – 1st bank 4,000,000
Current account – 2nd bank (250,000)
Money market placement – 3rd bank 1,000,000
Time deposit – 4th bank 2,000,000
- The petty cash fund included unreplenished December 2016 petty cash expense vouchers for P15,000 and an
employee check for P5,000 dated January 31, 2017
- A check for P100,000 was drawn against 1st bank current account dated and recorded December 29, 2016 but
delivered to payee on January 15, 2017.
- The 4th bank time deposit is set aside for land acquisition in early January 2017.
What total amount should be reported as cash and cash equivalents on December 31, 2016?

Solution:
Petty cash fund (50,000 – 15,000 – 5,000) 30,000
Current account – 1st bank (4,000,000 + 100,000) 4,100,000
Money market placement 1,000,000
Total cash and cash equivalents 5,130,000

Jeanette Company provided the following information with respect to cash and cash equivalents on December
31, 2016
Checking account at First bank (200,000)
Checking account at Second bank 3,500,000
Treasury bonds 1,000,000
Payroll account 500,000
Value added tax account 400,000
Foreign bank account – restricted (in equivalent pesos) 2,000,000
Postage stamps 50,000
Employee’s postdated check 300,000
IOU from president’s brother 750,000
Credit memo from a vendor for a purchase return 80,000
Traveler’s check 300,000
Not sufficient fund check 150,000
Petty cash fund (20,000 in currency and expense receipts P30,000) 50,000
Money order 180,000
What amount should be reported as unrestricted cash on December 31, 2016?

Solution:
Checking account at second bank 3,500,000
Payroll account 500,000
Value added tax account 400,000
Travelers check 300,000
Petty cash fund 20,000
Money order 180,000
Total unrestricted cash 4,900,000
Bart Company showed the following at year-end:

Allowance for doubtful accounts (debit balance) (15,000)

Net sales 7,000,000

Bart estimates its uncollectible receivables at 3% of net sales. What is the allowance for doubtful accounts at year
end? ___________

Solution:
The allowance for doubtful accounts at year-end is computed as follows:
Allowance for doubtful accounts
before adjustment (debit balance) (15,000)
Doubtful accounts expense ( 7,000,000 X 3%) 210,000
Allowance for doubtful accounts, December 31 195,000

Effective with the year ended December 31, 2017, Mall Company adopted a new accounting method for
estimating the allowance for doubtful accounts at the amount indicated by the year-end aging of accounts
receivable. The following data are available:

Allowance for doubtful accounts, January 1 250,000

Provision for doubtful accounts during 2017
(2% of credit sales of P10,000,000) 200,000
Accounts written off 205,000
Estimated uncollectible accounts per aging on December 31 220,000

After year-end adjustment, what is the doubtful accounts expense for 2017? ________________

Solution:
Allowance for doubtful accounts – January 1 250,000
Doubtful accounts expense (SQUEEZE) 175,000
Total 425,000
Accounts written off (205,000)
Allowance for doubtful accounts – December 31 220,000

Pakito Company follows the procedure of debiting bad debt expense for 2% of all new sales

Sales Allowance for bad debts

2016 3,000,000 40,000
2017 2,800,000 60,000
2018 3,500,000 80,000
What is the amount of accounts written off in 2018? ____________
Solution:
Allowance for bad debts – December 31, 2017 60,000
Bad debt expense for 2018 (2% X 3,500,000) 70,000
Total 130,000
Allowance for bad debts – December 31, 2018 80,000
Accounts written off in 2018 50,000
The following accounts were abstracted from Spain Company’s unadjusted trial balance on December 31, 2017:
Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales 20,000,000
Spain estimates that 2% of the gross accounts receivable will become uncollectible. What amount should be
recognized as doubtful accounts expense for 2017?
The doubtful accounts expense is determined as follows:
Allowance for doubtful, December 31, 2017 100,000
Add: Debit balance in allowance account before adjustment 40,000
Doubtful accounts expense 140,000

Vewee Nice Company had the following account balances on December 31, 2016:

Cash in bank – current account 5,000,000

Cash in bank – payroll account 1,000,000
Cash on hand 500,000
Cash in bank – restricted account for building
Construction expected to be disbursed in 2017 3,000,000
Time deposit, purchases December 15, 2016 and
Due March 15, 2017 2,000,000

The cash on hand included a P200,000 check payable to Vewee Nice dated January 15, 2017. What total amount
should be reported as “cash and cash equivalents” on December 31, 2016?

Solution:
Cash in bank – current account 5,000,000
Cash in bank – payroll account 1,000,000
Cash on hand (500,000 -200,000) 300,000
Time deposit 2,000,000
Total cash and cash equivalents 8,300,000