Southern City Colleges

Pilar St., Zamboanga City

Department of Business and Management
Midterm Exam
Intermediate Accounting 1

Name: Score:
Year & Section:
Test 1: Select the best answer for each of the following questions. Erasures will INVALIDATE YOUR ANSWER
__1. Trade receivables are classified as current assets if __5. Accounts receivable shall be recognized initially at
they are reasonably expected to be collected a. Face value
a. Within one year. b. Discounted value
b. Within the normal operating cycle. c. Maturity value
c. Within one year or within the operating cycle, d. Current value
whichever is shorter. __6. Long-term notes receivable which nominally bear no
d. Within one year or within the operating cycle, interest or an interest which is unreasonably low shall be
whichever is longer. recognized initially at
__2. Nontrade receivables are classified as current assets a. Face value
only if they are reasonably expected to be realized in cash b. Present value
a. Within one year or within the operating cycle, c. Maturity value
whichever is shorter. d. Current value
b. Within one year or within the operating cycle, __7. Credit balances in accounts receivable shall be
whichever is longer. classified as
c. Within the normal operating cycle. a. Current liabilities
d. Within one year, the length of the operating b. Part of accounts payable
cycle notwithstanding c. Long term, liabilities
__3. Which of the following statements is true in relation d. Deduction from accounts receivable
to presentation of receivables in the statement of financial __8. Receivables from subsidiaries shall be classified as
position? a. Current assets
a. Trade receivables and nontrade receivables are b. Noncurrent assets
shown separately c. Either as current or noncurrent depending on
b. Nontrade receivables are presented as the expectation or realizing them within one
noncurrent assets year or over one year
c. Trade accounts receivable and trade notes d. Partly current and partly noncurrent
receivables shall be presented separately
__9. Where the operating cycle extends beyond one year
d. Trade receivables and nontrade receivables
because of normal credit terms as in the case of
which are currently collectible shall be presented
installment sales of household appliances
as one line item called “ trade and other
a. It is proper to classify the entire receivables as
receivables”
current assets with disclosure of the amount not
__4. If the ideal measures of short-term receivables in the realizable within one year, if material.
statement of financial position is the discounted amount b. The entire receivables are shown as noncurrent
of the cash to be received in the future, failure to follow assets.
this practice usually does not make the statement of c. The portion due in one year is shown as current
financial position misleading because and the balance as noncurrent.
a. Most short-term receivables are not interest- d. The receivables are not recognized.
bearing.
__10. In the case of long-term installments receivable
b. The allowance for doubtful accounts includes a
(real estate installment sales) where a major portion of the
discount element.
receivables will be collected beyond the normal operating
c. The amount of the discount is not material.
cycle
d. Most receivables can be sold to a bank or factor.
 a. The entire receivables are shown as current
without disclosure of the amount not currently
due.
b. The entire receivables are shown as noncurrent.
c. On the portion currently due is shown as current
and the balance as noncurrent.
d. The entire receivables are shown as current with
disclosure of the amount not currently due.
__11. On October 1 of the current year, an entity
received a one-year noted receivable bearing interest at
the market rate. The face amount of the note receivable
and the entire amount of the interest are due in
September 30 of next year. The interest receivable on
December 31 of the current year would consist of an
amount representing
a. Three months of accrued interest income
b. Nine months of accrued interest income
c. Twelve months of accrued interest income
d. The excess on October 1 of the present value of
the note receivable over its face amount
__12. On July 1 of the current year, 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 the date of maturity. Interest receivable on
December 31 of the current year is
a. 5% of the face amount of the note
b. 4% of the face amount of the note
c. 5% of the present value of the note
d. 4% of the present value of the note
__13. An entity uses the installment sales method to
recognize revenue. Customers pay the installment notes in
24 equal monthly amounts which includes 12% interest.
What is the installment notes receivable balance six
months after the sale?
a. 75% of the original sales price.
b. Less than 75% of the original sales price.
c. The present value of the remaining monthly
payments discounted at 12%.
d. Less than the present value of the remaining
monthly payments discounted at 12%
__14. What is imputed interest?
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
__15. Accounting for the interest in a noninterest bearing
note receivable is an example of what aspect of
accounting theory?
a. Matching
b. Verifiability
c. Substance over from
d. Form over substance
__16. The “amortized cost” of loan receivable is the
amount at which
a. 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.
b. The loan receivable id measured initially minus
principal repayment, plus or minus the
cumulative amortization of any difference
between the initial amount recognized and the
principal maturity amount.
c. The loan receivable is measured initially
d. The loan receivable is measured initially minus
principal repayment.
__17. Subsequent to initial recognition, a loan receivable
shall be measured at
a. Cost
b. Amortized cost using the straight line method
c. Amortized cost using the effective interest
method
d. Fair value
__18. In calculating the carrying amount of 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
__19. 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.
__20. If there is evidence than an impairment loss on loan
receivable has been incurred, the loss is equal to the
 a. Excess of the carrying amount of the loan What is the balance in allowance for doubtful accounts at
receivable over the present value of the cash December 31, 2010?
flows related to the loan. a. P630,000
b. Excess of the present value of cash flows related b. P420,000
to the loan over the carrying amount of the loan c. P500,000
receivable. d. 580,000
c. Excess of the carrying amount of the loan over __24. At the end of its first year of operations, December
the principal amount of the loan. 31, 2010. Caoayan, Inc. reported the following
d. Excess of the principal amount of the loan over information:
the carrying amount. Accounts receivable, net of allowance for
doubtful accounts P9,500,000
TEST II. Show your solution
Customer accounts written off as uncollectible
during 2010 240,000
__21. Bantay Company’s unadjusted trial balance at
bad debts expenses for 2010 840,000
December 31, 2010, included the following accounts:
What should be the balance in accounts receivable at
Debit Credit
December 31,2010, before subtracting the allowance for
Accounts receivable P1,000,000
doubtful accounts?
Allowance for doubtful accounts 40,000
a. P10,100,000
Sales P15,000,000
b. P10,340,000
Sales return and allowances 700,000
c. P9,740,000
d. P10,580,000
Bantay Company estimates its bad debt expense to be 1
½% of net sales, Determine its bad debt expense for 2010. __25. The following accounts were taken from Cervantes
a. P225,000 Inc.’s statement of financial position at December 31,
b. P254,500 2010.
c. P214,500 Debit Credit
d. P55,000 Accounts receivable P4,100,000
__22. An analysis and aging of Burgos Corp. accounts Allowance for doubtful accounts 100,000
Net credit sales P7,500,000
receivable at December 31, 2010, disclosed the following:
Amounts estimated to be uncollectible P1,800,000
If doubtful accounts are 3% of accounts receivable,
Accounts receivable 17,500,000
determine the bad debt expenses to be reported for 2010.
Allowance for doubtful accounts
a. P123,000
(per books) 1,250,000
b. P23,000
c. P223,000
What is the net realizable value of Burgos’ Receivables at
d. P225,000
December 31, 2010?
a. P15,700,000
Your audit disclosed than on December 31, 2010, the
b. P17,500,000
accounts receivable control account of Alilem Company
c. P16,250,000
had a balance of P2,865,000. An analysis of the accounts
d. P14,450,000
receivable account showed the following:
__23. Cabugao Company provides for doubtful accounts
based 3% of the credit sales. The following data are Accounts known to be worthless P37,500
available for 2010. Advance payments to creditors on purchase
Credit dales during 2010 P21,000,000 orders 150,000
Allowance for doubtful accounts 1/1/10 170,000 Advances to affiliated companies 375,000
Collection of accounts written of in prior years Customers’ accounts reporting credit balances
(Customer credit was reestablished) 80,000 arising from sales return (225,000)
Customer accounts written off as uncollectible Interest receivable on bonds 150,000
during 2010 300,000 Other trade accounts receivable – unassigned 750,000
Subscriptions receivable due in 30 days 825,000
Trade accounts receivable – assigned (Alilem __29. What interest income should be reported for 2014?
company’s equity in assigned accounts is
P150,000) 375,000 a. 505,000
Trade installment receivable due 1 – 18 months, b. 101,000
including unearned finance charges of c. 159,600
P30,000 330,000 d. 119,600
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are __30. What is the carrying amount of the note receivable
held (no entries were made on receipts of on December 31, 2014?
checks) 75,000
P2,865,000 a. 1,654,600
b. 2,000,000
Basedon the above and the result of your audit, c. 2,154,600
determine the adjusted balance of following: d. 1,495,000
__26. The trade accounts receivable as of December 31,
2010 is
a. P1,147,500
b. P1,522,500
c. P1,485,000
d. P1,447,500
__27. The net current trade and other receivables as of
December 31, 2010 is
a. P2,647,500
b. P2,610,000
c. P2,272,500
d. P1,822,500
Prepared by:
Pangasinan Company is a dealer in equipment. On
December 31, 2013., the entity sold an equipment in
exchange for noninterest bearing note requiring five
annual payments of P500,000. The first payment was Melvin C. Fernandez, CPA
made on December 31, 2014. The market interest for College Instructor
similar notes was 8%. The PV of 1 at 8% for 5 periods is
.68, and the PV of an ordinary annuity of 1 at 8% for 5
periods is 3.99.
Approved by:

__28. On December 31, 2013, what is the carrying

amount of the note receivable?
Dr. Juniara I. Tero
a. 2,500,000 Dean, DBM
b. 1,995,000
c. 1,700,000
d. 1,495,000