Chapter 3

RECEIVABLES

MULTIPLE CHOICE
1. These represent open accounts with customers.
a. Trade receivables
b. Nontrade receivables
c. Accounts receivable
d. Notes receivables

2. Upon initial recognition, accounts receivable are measured at

a. Face value
b. Discounted value
c. Maturity value
d. Net realizable value

3. Trade receivables that are expected to be collected within 12 months after the reporting
period shall be presented in the statement of financial position at
a. Net realizable value
b. Maturity amounts
c. Face amounts
d. Discounted values

4. Receivables denominated in a foreign currency should be

a. Translated to local currency using the exchange rate at the time of recognition
b. Shown at face value of the foreign currency
c. Translated to local currency using the exchange rate at closing rate
d. Translated to local currency using the exchange rate when the financial statements are
authorized for issue
5. Which valuation allowance is a proper deduction from trade accounts receivable in arriving
at estimated realizable value?
a. Allowance for doubtful accounts
b. Allowance for trade discount
c. Allowance for cash discount
d. Allowance for freight charge
6. Trade receivables are classified as current assets when they are reasonably expected to be
collected
a. Within one year
b. Within the normal operating cycle
c. Within one year or within the normal operating cycle whichever is shorter
d. Within one year or within the normal operating cycle whichever is longer

7. Nontrade receivables are classified as current assets only if they are reasonably expected to
be realized in cash
a. Within one year or normal operating cycle, whichever is shorter.
b. Within the normal operating cycle
c. Within one year or the normal operating cycle, whichever is longer
d. Within one year, the length of the operating cycle notwithstanding
8. Which is true concerning the balance sheet presentation of receivables?
a. Trade receivables and nontrade receivables are shown separately.
b. Nontrade receivables are presented as noncurrent assets.
c. Trade accounts receivable and trade notes should be presented separately.
d. Trade receivables and nontrade receivables, which are currently collectible, shall be
presented as one line item called “trade and other receivables”.

9. A discount given to a customer for purchasing a large volume of merchandise is typically

referred to as
a. Quantity discount
b. Cash discount
c. Trade discount
d. Size discount

10. Which of the following is false in relation to cash and trade discounts?
a. Cash discounts are reductions in the invoice price allowed when payment is made within
the discount period while trade discounts are reduction from the list price or catalog price
in order to get the invoice price or amount actually charged to the buyer.
b. Cash discounts are recorded but trade discounts are not recorded.
c. The purpose of cash discounts is to encourage prompt payment while the purpose of
trade discounts is to encourage trading or promote sales.
d. Both purchases with trade and cash discounts should be recorded at net.
Exercise 3 – 1

An analysis of the accounts receivable of Grammar Inc. shows the following information:

Age Balance % Collectible

Current ₱3,500,000 99.5
1 to 30 days past due 2,000,000 98
31 to 60 days past due 1,200,000 95
61 to 90 days past due 1,000,000 92
91 to 120 days past due 800,000 85
121 to 180 days past due 400,000 70
181 to 360 days past due 200,000 50
More than 360 days past due 100,000 10

Before any adjustments were made, Grammar’s allowance for doubtful accounts had a
balance of ₱80,000.

1. Determine the required balance of Grammar’s doubtful accounts at the end of the reporting
period.
2. Determine the doubtful accounts expense Grammar should recognize during the period.
3. Determine the net realizable value of Grammar’s accounts receivable at the end of the
period.
Exercise 3 – 2
Coachella Co. prepared the following analysis of its accounts receivable on December 31,
2020:
Number of days past due Amount
0-30 ₱5,000,000
31-60 3,500,000
61-90 1,000,000
91-180 500,000
Over 180 100,000

Coachella’s experience on the uncollectibility of its accounts receivables for the last five
years are summarized below:

End of year % Uncollectible on days overdue

Year
balance 0-30 31-60 61-90 90-180 Over 180
2019 ₱ 9,700,000 3 8 18 48 79
2018 9,300,000 2 9 19 52 72
2017 8,800,000 4 10 21 46 85
2016 8,200,000 4 7 17 54 81
2015 7,500,000 2 6 15 50 78

Before any adjustments were made, the balance of the allowance for doubtful accounts was
₱175,000. Coachella determines the balance of the allowance for doubtful accounts at the average
percentage of the losses for the last five years. The entity writes off receivables if they are
determined to be totally worthless.

1. Compute for the adjusted balance of Coachella’s allowance for doubtful accounts on
December 31, 2020.
2. Compute for the doubtful accounts expense that Coachella should recognize in 2020.
3. Determine the net realizable value of Coachella’s accounts receivable on December 31,
2020
Exercise 3 – 3
The adjusted trial balance of Thomas Company as of December 31, 2019 shows the
following:

Debit Credit
Accounts Receivable ₱ 1,000,000
Allowance for Doubtful Accounts ₱ 37,000

Additional information:

a. Cash sales of the company represent 10% of gross sales. Total sales amounted to
₱12,000,000.
b. Ninety percent of the credit sales customers did not take advantage of the 2/10, n/30 terms.
Total face value of accounts receivable collected during the year was ₱8,360,000.
c. Sales returns in 2020 amounted to ₱400,000. All returns were from charge sales.
d. During 2020, accounts totaling ₱40,000 were written off as uncollectible; bad debt recoveries
during the year amounted to ₱3,000.
e. The allowance for doubtful accounts is measured as follows:
Percentage of ending balance Percent uncollectible
60 2
20 20
12 40
5 60
3 90

Based on the information given, answer the following:

1. Accounts Receivable balance as of December 31, 2020

2. Allowance for Doubtful Accounts, December 31, 2020
3. Net realizable value, December 31, 2020
4. Doubtful Accounts Expense for 2020.
Exercise 3 – 5

On January 1, 2020, Frank Co. received a 14%, three-year note from a customer. The
interest on the note is paid every June 30 and December 31. The note has a face value of
₱1,000,000. The effective rate applicable on the note is 12%.

1. Determine the initial amount of the note.

2. Prepare an amortization table to show the balance of the note at the end of each reporting
period from 2020 to 2022.
3. Compute for the interest income recognized by Frank during each period from 2020 to 2022.
Exercise 3 – 6

Accounts receivable balance of Skinner Co. on December 31, 2019 was ₱1,200,000.
Pertinent information regarding the company’s credit sales and accounts receivable in 2020 and
2021 follows:

2020 2021
Accounts receivable, December 31 ₱ 1,300,000 ₱ 1,700,000
Credit sales 22,500,000 21,600,000

1. Compute for the accounts receivable turnover in 2020 and 2021.

2. Compute for the average collection period in 2020 and 2021.
Exercise 3 – 4

On January 1, 2020, James Co. received a 10%, five year note from a customer. Interest is
paid every December 31. The note has a face value of ₱12,000,000. The effective rate on the date
of the receipt of the note was 12%

1. Determine the initial amount of the note.

2. Prepare an amortization table to show the balance of the note at the end of each reporting
period from 2020 to 2024.
3. Compute for the interest income recognized by James during each period from 2020 to 2024.