Part I Part II

1. D 1. 1, 000
2. A 2. 89, 200
3. A 3. 855, 000
4. C 4. 1, 380,000
5. C 5. 83,750
6. C 6. 58,750
7. C 7. 1,116,250
8. D 8. 292, 637
9. C 9. 152, 969
10. B 10. 617,492
11. D 11. 1, 068, 185
12. A 12. 130,262
13. C 13. 212, 599
14. B 14. 450, 076
15. C 15. 1, 230, 261
16. C 16. 625,027
17. B 17. 4,265,544
18. D 18. 275, 000
19. A 19. 2, 200, 000
20. D 20. 1, 425, 000
21. 525, 000
22. 825, 000
23. 260, 000
24. 8, 265, 378
25. 1,222,500
26. 278,000
27. 266,000
28. 2,394,000
Part I

1. When a firm writes off a bad debt under the allowance method of accounting for bad debts
a. The realizable value of accounts receivable decreases
b. Total net current assets will decrease
c. The cash account will decrease
d. The realizable value of accounts receivable will not change
2. When a firm recovers an account receivable that was previously written off under the
allowance method of accounting for bad debts
a. The realizable value of accounts receivable will decrease
b. The cash account will decrease by the full amount of the recovery
c. The allowance account will decrease by the amount collected
d. The realizable value of accounts receivable will increase
3. A firm using the allowance method of accounting for bad debts expense has recovered a bad
debt that was written off one year ago. The appropriate journal entry to record the recovery
would include a
a. Credit to the Allowance for Doubtful Accounts account
b. Debit to the Bad Debt Expense account
c. Credit to the Bad Debt Expense account
d. Debit to the Allowance for Doubtful Accounts account
4. In receivable financing, a receivable qualifies for derecognition if
a. There is no substantial transfer of risk and rewards of ownership
b. There is minimal transfer of risk and rewards of ownership
c. There is substantial transfer of risk and rewards of ownership
d. None of the above
5. Accounts receivable are reported in the statement of financial position at their:
a. Fair market value
b. Present value
c. Amortized cost
d. Maturity value
6. When an account is written off under the allowance method, the
a. Bad debts expense account is debited
b. Accounts receivable account is debited
c. Allowance for doubtful accounts is debited
d. Loss on Accounts receivable account is debited
7. A note receivable is initially measured at
a. Face value
b. Fair market value
c. Present value
d. Maturity value
8. The entry to record the dishonor of a note includes a debit to
a. Allowance for doubtful accounts
 b. Loss on Notes Receivables
c. Bad debts expense
d. Accounts receivable
9. Which of the following statements is true?
a. The direct write off method of accounting for bad debts is widely used by companies
that sell on credit.
b. If a credit sale is made with terms of 2/10, n/30, the customer is given a 10% discount if
the bill is paid within 30 days.
c. If the seller grants a cash discount to credit customers, it is acceptable accounting
practice to record both the sale and the receivable net of the available cash discount.
d. The adjusting journal entry to record estimated bad debts under the allowance method
involves a debit to Bad Debts Expense and credit to Accounts Receivable.

10. Which of the following statements is true?

a. When a company pledged its accounts receivable to a bank, the bank to the receivables
at the time of pledging
b. Travel advances to sales personnel are properly classified as trade accounts receivables.
c. Assigned accounts receivable should be disclosed separately from unassigned accounts
receivable on the borrowing company’s balance sheet.
d. When accounts receivable are factored, ownership of the receivables is not transferred
to the party acting as the factor.

11. Use of the direct write-off method in accounting for bad debts would in most instances violate
which of the following accounting principles?
a. Objectivity
b. Consistency
c. Materiality
d. Matching

12. The method of estimating bad debts that most closely matches current expenses with current
revenues is one that obtains the estimate from:
a. Percentage of sales
b. Percentage of total credit sales
c. Percentage of accounts receivables
d. Aging of accounts receivables

13. The Pizza Company records sales on account using the gross method and offers terms of 3/15,
n/45. How would Pizza record the entry of a credit sale of P1, 000?
a. Accounts receivable 1, 000
Sales 970
Sales Discounts 30
b. Accounts receivable 970
Sales 970
 c. Accounts receivable 1, 000
Sales 1, 000
d. Accounts receivable 970
Sales 1, 000
Sales Discounts 30

14. Using the information in question 13, assume that payment is made 5 days after the sale,
what would be the correct entry?
a. Cash 1, 000
Accounts receivable 970
Sales Discounts 30
b. Cash 970
Accounts receivable 1, 000
Sales Discounts 30
c. Cash 1, 000
Accounts receivable 1, 000
d. Accounts receivable 1, 000
Cash 970
Sales Discounts 30
15. Angelique Company follows the procedure of estimating its bad debts from credit sales.
Recently, the company evaluated all of its trade accounts receivable balances and wrote off
P16, 000 worth of accounts that were considered to be uncollectible. Just prior to this write-
off, the Allowance for Doubtful Accounts account had a credit balance of P82, 000. The effect
of this write-off on the financial statements was to:
a. Increase company expenses by P16, 000.
b. Increase company expenses by P66, 000.
c. Decrease total current assets by P16, 000.
d. Leave the balance of total current assets unchanged.

16. Lyzeth Company uses the allowance method to recognize uncollectible accounts expense.
What is the effect at the time of collection of an account previously written off on each of the
following accounts?

Allowance for uncollectible accounts Uncollectible accounts

a. No effect decrease
b. Increase decrease
c. Increase no effect
d. No effect no effect
17. Which of the following is a method to generate cash from accounts receivables?

Assignment Factoring

a. Yes no
b. yes yes
 c. no yes
d. No no
18. Krylov Company factored its receivable. Control was surrendered in the transaction which was
on a without recourse basis with Joerji Bank. Krylov received cash as a result of this
transaction, which is best described as a
a. Loan from Joerji collateralized by Krylov’s accounts receivable
b. Loan from Joerji to be repaid by the proceeds from Krylov’s accounts receivable
c. Sale of Krylov’s accounts receivable to Joerji, with the risk of uncollectibility retained by
Krylov
d. Sale of Krylov’s accounts receivable to Joerji, with the risk of uncollectibility transferred
to Joerji
19. Which of the following is used to account for probable sales discount, sales return, and sales
allowances?

Due from Factor Recourse Liability

a. Yes no
b. yes yes
c. no yes
d. No no

20. When an entity hold collateral and is permitted to sell or repledge the collateral in the
absence of default by the owner of the collateral, it shall disclose:
a. The fair value of the collateral held
b. The fair value of any such collateral sold or repledged and whether the entity has an
obligation to return it
c. The terms and conditions associated with the use of the collateral
d. All of the above

Part II.

Problem A

Cleo Company provided the following data for the year ended 2017:

• December 10, 2017 – sold merchandise to Dominique under credit terms of 2/10, n/30 with
invoice price of P102, 600 and trade discounts of 10%and 5%
• December 11, 2017 – sold merchandise to Michelle, P50, 000 under credit terms of 2/10, n/30
• December 20, 2017 – collected the account of Dominique in full
• December 27, 2017 – sold merchandise to Jason, P40, 000 under credit terms of 2/10, n/30

Compute for the following:

1. Sales discount forfeited reported on December 31, 2017.

2. Amortized cost of the Accounts Receivable on December 31, 2017.
Problem B*

On October 1, 2017, Blue Company sold its building to Black Company which had carrying value
amounting to P6, 750, 000. In consideration of the sale, Black Company issued a 5 year , 15% 6,000,000
promissory note plus cash consideration amounting to 300,000. The terms of the note calls for 5 equal
annual payments plus accrued interest based on the beginning outstanding balance every September 31
starting 2018

Compute for the following:

3. Interest Income for the year 2018

4. Total amount presented as current assets for the year 2018

Problem C

Allen Company started business at the beginning of 2017. During the year, the entity wrote off P25, 000
of uncollectible accounts. Further analysis showed that merchandise purchased amounted to P4, 500,
000 and the ending inventory was P750, 000. Goods were sold at 40% above cost. The total sales
comprised 80% sales on account and 20% cash sales. Total collections from customers, excluding cash
sales, amounted to P3, 000, 000. The entity established an allowance for doubtful accounts estimated at
5% of its outstanding accounts receivable.

Compute for the following:

5. Uncollectible accounts expense for the year 2017.

6. Adjusted balance if the allowance for Uncollectible Accounts.
7. Amortized cost of the Accounts Receivable in 2017.

Problem D

On January 1, 2017, Lara Ltd. sold a machine costing P2, 000, 000 and is 60% depreciated at the time of
sale. As payment, Lara received from Danica a P1, 500, 000 non-interest bearing note. This note is
payable in 4 equal installments of P375, 000 every December 31, starting December 31, 2017. The fair
market value of the machine is not available but the prevailing market interest rate for this note is 14%.
PV factor of P1 at 14% for 4 periods is 0.5921; PV factor of annuity of P1 at 14% for 4 periods is 2.9137.

Compute for the following:

8. Gain or loss from sale of the machine
9. Interest income for the year 2017
10. Amortized cost of the Notes Receivable on December 31, 2018
Problem E

On January 1, 2017, Clarice Company sold land to Rolfa Corp. and accepted as payment a 10% noted
with a face value of P1, 200, 000. The note is payable in five equal annual installments at P240, 000 plus
accrued interest based on the beginning outstanding balance every December 31 starting December 31,
2017. The fair value of the land is not available but similar types of notes reflect a 15% market interest
rate. PV factor P1 at 15% for 5 periods is 0.4972; PV factor of annuity of P1 at 15% for 5 periods is
3.3522.

Compute for the following:

11. Present value of the note on January 1, 2017

12. Interest income for the year 2018
13. Current portion of the notes receivable on December 31, 2018
14. Non-current portion of the notes receivable on December 31, 2018

Problem F

Mcdonalds Company has a P7, 500, 000 notes receivable from Jollibee Company. Due to economic
downtrends, Jollibee will not be able to service its debt to Mcdonalds. Jollibee negotiated for a
restructuring of its obligation. Mcdonalds had already accrued interest of P675, 000 based on the stated
rate of 9%. The due date of the note was December 31, 2017.

The terms of the restructuring were as follows:

• Extension of maturity date to December 31, 2022

• Principal payable every December 31 starting December 31, 2018 in five equal annual
installments plus accrued interest based on the reduced interest rate of 6%
• The accrued interest will be condoned by Mcdonalds.

Mcdonalds had not previously recognized impairment on this noted based on the 12-month expected
credit losses on the date of initial recognition. The prevailing interest rate at the time of the
restructuring of the note was 6%.

PV factor of P1 at 9% for 1 period – 0.9174

PV factor of P1 at 9% for 2 periods – 0.8417
PV factor of P1 at 9% for 3 periods – 0.7722
PV factor of P1 at 9% for 4 periods – 0.7084
PV factor of P1 at 9% for 5 periods – 0.6499

Compute for the following:

15. Impairment loss on the notes receivable

16. Interest income for 2018
17. Amortized cost of the restructured notes receivable on December 31, 2019
Problem G

On June 1, 2017, Maricris Inc. factored P2, 750, 000 of accounts receivable with Russel on a without
recourse basis. Russel assessed a factoring fee of 10% of total accounts receivable factored and retained
an amount equal to 10% of the total accounts receivable factored to cover sales discounts and sales
returns. Subsequently, sales discount and sales returns on factored accounts receivables amounted to
P75, 500.

Compute for the following:

18. Loss on factoring of accounts receivable

19. Cash proceeds from factored accounts

Problem H

On December 1, 2017, Visha Corp. assigned specific accounts receivable totaling P2, 000, 000 as
collateral on a P1, 500, 000 12% note from Gerard Bank. Visha will continue to collect the assigned
accounts receivable. In addition to the interest, Gerard also charged a 5% finance fee deducted in
advance on the P1, 500, 000 value of the note. The December collections of assigned accounts
receivable amounted to P1, 000, 000 less cash discounts of P50, 000. On December 31, 2016, Visha
remitted collections to Gerard in payment for the interest incurred on December 31, 2016 and the note
payable. Visha accepted sales returns of P75, 000 on the assigned accounts and wrote off assigned
accounts of P100, 000.

Compute for the following:

20. Cash proceeds from the assignment of accounts receivable

21. Remaining balance of the notes payable on December 31, 2017
22. Remaining balance of the accounts receivable on December 31, 2017
23. Equity on the assigned accounts

Problem I

On July 31, 2017, Santos Company discounted with BDO bank some of its notes receivable as follows:

• 9%, P1, 500, 000 120-day promissory note from A Corporation dated February 28, 2017
• 11%, P6, 750, 000 90-day promissory note from B Corporation dated June 16, 2017
• P1, 200, 000 non-interest bearing 60-day promissory note from C Corporation dated June 30,
2017
The discount rate charged by the bank was 7%. All makers of the promissory notes honored the
obligation on due date except C Corporation who failed to pay the bank on maturity date. The bank
charged Santos Company for the maturity value of the note plus protest fees amounting to P22, 500.
Discounting of the notes was made without recourse except the note of C Corporation.

Compute for the following:

24. Cash proceeds from discounting of notes.

25. Compute for the total amount collectible from C corporation for dishonoring the note

Problem J

Data relating to the accounts receivable of Alan Company for the year ended December 31,2017 were as
follows

Accounts Receivable Jan 1, 2017 480,000

Allowance for bad debts Jan 1,2017 48,000
Gross profit 60% based on cost
Sales during the year, all on account
[terms 3/10,2/15,1/20,n/25] ?

Cost of Goods available for sale 4,800,000

Cash received from credit customers 5,275,000

from customers availing the 10 day discount 2,910,000
from customers availing the 15 day discount 1,470,000
from customers availing the 20 day discount 495,000
from customers paying beyond the disc period ?

Accounts written off during the year 75,000

Credit Memo for Sales Return 25,000

Bad debts recovery (not included in the above collections) 15,000

Alan estimates 10% of its outstanding accounts receivable as uncollectible

Compute for the following

26. Uncollectible Accounts Expense for the year 2017

27. Adjusted balance of the Allowance for Uncollectible Accounts

28. Amoritzed Cost of the Accounts Receivable