Practice Exam- Prelim Topics (Intermediate Accounting I)

Nario Company provided the following transactions affecting accounts receivable during the current year:

• Sales- cash and credit. 5,900,000

• Cash received from credit customer, all of whom took advantage of the discount feature of the
credit terms 4/10, n/30. 3,024,000
• Cash received from cash customer. 2,100,000
• Accounts receivable written off as worthless. 50,000
• Credit memorandum issued to credit customers for sales returns and allowances.
250,000
• Cash refunds given to cash customers for sales returns and allowances. 20,000
• Recoveries on accounts receivable written off as uncollectible in prior periods not included in cash
received from credit customers. 80,000

BALANCES ON JANUARY 1

Accounts receivable 950,000

Allowance for doubtful accounts 100,000

The entity provided for uncollectible accounts by crediting allowance for doubtful accounts in the amount
of 70,000 for the current year.

1. What amount should be reported as accounts receivable on December 31?

a) 1,300,000
b) 1,426,000
c) 1,280,000
d) 1,220,000

2. What amount should be reported as allowance for doubtful accounts on December 31?

a) 120,000
b) 200,000
c) 250,000
d) 170,000

Sherly Company provided the following information on December 31, 2021:

Cash on Hand 400,000

Security Bank- current account 5,000,000

Manila Bank- current account no. 1 4,000,000

Manila Bank- current account no. 2 (bank overdraft) (500,000)

Cash fund- if duration is 1 year
BDO account set aside for bond payable due 12/31/2022. 3,000,000 or less, even if it reaches the
following year, it is considered
United Bank- saving account for acquisition of equipment. 1,500,000
as current.
United Bank- time deposit, 90 days 2,000,000

Treasury Bills 1,000,000

Included among the checks drawn by Sherly Company against the Security Bank- current account and
recorded in December 2021 are:

• Check written and dated December 23, 2021, and delivered to payee on January 7, 2022, 100,000.
• Check written December 26, 2021, dated January 30, 2022, delivered to payee on December 28,
2021, 150,000.

3. What total amount should be reported as cash on December 31, 2021?

a) 12,150,000
b) 12,630,000
c) 9,150,000
d) 9,400,000

4. What total amount should be reported as cash equivalent on December 31, 2021?

a) 3,000,000
b) 4,500,000
c) 2,000,000
d) 2,500,000

Joriz Company provided the following data for the month of January:

• Balance per book, January 31 3,130,000

• Balance per bank, January 31 3,500,000
• Collections on January 31 but not deposited. 550,000
• NSF check received from customer and returned by bank on February 5 with the January bank
statement. 50,000
• Check outstanding on January 31 650,000
• Bank debit memo for safety deposit box rental but not recorded by depositor. 5,000
• Creditor’s check for 30, 000 incorrectly recorded in the depositor’s book as 300,000.
• A customer check for 200,000 recorded by the depositor as 20,000.
• The depositor neglected to make an entry for a check drawn in payment of accounts payable.
125,000

5. What amount should be reported as adjusted cash in bank on January 31?

a) 3,156,000
Book Balance 3,130,000 Actual Value
b) 2,850,000 Add: Over- CrC 270,000 Less: Recorded Value
c) 3,400,000 Under- CC 180,000 Total:
d) 2,950,000 LEss: NSF 50,000 Understatement/Overstatement
DB 5000
UC 125000 If creditors check, reverse the
Adjusted Book Balance : 3.4M sign.
6. Trisha Company used the allowance method of accounting for uncollectible accounts. Du ring the
current year, the entity had charged 800,000 to bad debt expense and wrote off 900,000 of the accounts
receivable as uncollectible.

What was the decrease in the working capital?

a) 900,000
b) 800,000
c) 0
d) 100,000

7. Ianna Company began operations on January 1, 2018. The entity provided for doubtful accounts based
on 5% of the annual credit sales in prior years.

On January 1, 2021, Ianna changed the method of determining the allowance for doubtful accounts using
an aging schedule.

Accounts 2021 2020 2019 2018

Credit Sales 15,000,000 9,500,000 8,000,000 6,000,000
Collections 11,700,000 8,200,000 6,700,000 4,500,000
Write offs 200,000 120,000 80,000 -
Recovery 100,000 40,000 35,000 -

Days Account Outstanding Amount Probability of Collection

30 days or less 3,000,000 95%
Between 31 and 60 days 1,500,000 80%
Between 61 and 180 days 1,200,000 75%
Between 181 and 1 year 1,200,000 50%
Over one year- to be written off 100,000 0%

8. What amount should be reported as allowance for doubtful accounts December 31, 2021?

a) 1,350,000
b) 1,450,000
c) 1,250,000
d) 1,000,000

9. What amount should be reported as doubtful accounts expense for 2021?

a) 500,000
b) 600,000
c) 700,000
d) 400,000

10. What amount should be reported as net realizable value of accounts receivable on December
31,2021?
 a) 6,900,000
b) 7,000,000
c) 5,550,000
d) 5,650,000

On December 31, 2021, Cortez Bank recorded an investment of 5,000,000 in a loan granted by client.

The loan is expected to yield 10% annually every December 31. The principal is due in full at maturity on
December 31, 2024.

Unfortunately, the borrower is experiencing significant financial difficulty and will have a difficult time in
making full payment.

The bank projected that the entire principal will be paid at maturity and 4% interest will be paid annually
on December 31 of the next 3 years. There is no accrued interest on December 31, 2021.

The present valuer of 1 at 10% for 3 period is 0.75, and the present value of an ordinary annuity of 1 at
10% for 3 period is 2.49.

11. What amount should be reported as impairment loss for 2021?

a) 752,000
b) 600,000
c) 250,000
d) 748,000

12. What amount should be reported as interest income for 2022?

a) 200,000
b) 424,000
c) 224,000
d) 500,000

13. What is the carrying amount of the loan receivable on December 31, 2022?

a) 5,000,000
b) 3,750,000
c) 4,472,800
d) 4,672,800

Hannah Company factored with recourse 2,000,000 of accounts receivable with a bank.

The finance charge is 5% and 10% was retained to cover sales discounts, returns, and allowances.

The transaction met the condition to be considered as sale but subject to recourse for nonpayment. The
factor estimated the recourse obligation at 50,000.

14. What total amount should be recognized as initial loss on factoring?

a) 200,000
b) 100,000
 c) 150,000
d) 250,000

15. What amount was initially received from factoring?

a) 2,000,000
b) 1,850,000
c) 1,700,000
d) 1,650.000

On December 1, 2021, Renzyl Company assigned specific accounts receivable totaling 5,000,000 as
collateral on a 4,000,000 12% note from a certain bank. The entity will continue to collect the assigned
accounts receivable.

In addition to the interest on the note, the bank also charged a 5% finance fee deducted in advance on
the assigned accounts.

The December collections of assigned accounts receivable amounted to 2,000,000 less cash discount of
200,000.
On December 31, 2021, the entity remitted the collections to the bank in payment for the interest accrued
on December 31, 2021, and the note payable.

The entity accepted sales return of 100,000 on the assigned accounts and wrote off 300,000 of the
assigned accounts.

16. What amount of cash was received from the assignment of accounts receivables on December 1,
2021?

a) 4,000,000
b) 3,800,000
c) 4,750,000
d) 3,750,000

17. What is the carrying amount of the notes payable on December 31, 2021?

a) 1,840,000
b) 2,140,000
c) 2,240,000
d) 2,200,000

18. What amount should be disclosed as the equity of the Solvent Company in assigned accounts on
December 31, 2021?
A/R- Assigned A/R- ending
a) 260,000 Less: Collection Less: Notes Payable
Sales Discount Total: Equity of A/R- Assigned
b) 400,000
Sales Return
c) 360,000 Write off
d) 760,000 Total : Ending

In preparing the bank reconciliation for the month of December, Rosarito Company provided the following
data:
 • Balance per bank statement - 3,800,000
• Deposit in transit - 520,000
• Amount erroneously credited by bank to Rosarito Company - 40,000
• Bank service charge for December - 5,000
• NSF Check - 50,000
• Outstanding Checks, including certified check of 100,000 – 775,000
19. What amount should be reported as adjusted cash in bank?

a) 3,685,000
b) 3,645,000
c) 3,600,000
d) 3,605,000

20. What is the unadjusted cash in bank per book?

a) 3,550,000
b) 3,660,000
c) 3,610,000
d) 3,655,000

Villarba Bank granted a loan to a borrower on January 1, 2021. The interest on the loan is 10%, payable
annually starting December 31, 2021. The loan matures in 3 years on December 31, 2023.

Principal Amount- 5,000,000

Direct Origination Cost incurred- 100,000

Indirect Origination Cost incurred- 50,000

Origination fee received from the customer- 340,000

After considering the origination fee received from the borrower and the direct origination cost incurred,
the effective rate of the loan is 12%.

21. What is the carrying amount of the loan payable of the borrower on January 1, 2021?

a) 4,760,000
b) 4,660,000
c) 4,810,000
d) 4,510,000

22. What amount should be reported as interest income for 2021?

a) 571,200
b) 500,000
c) 476,000
d) 547,200

23. What is the carrying amount of the loan receivable on December 31, 2022?
 a) 4,832,400
b) 4,760,000
c) 4,831,200
d) 4,910,944

Craig Company accepted from a customer 1,000,000 face amount, 6-month, 8% note dated April 1, 2021.
On the same date, the entity discounted the note without recourse at a 10% discount rate.

24. What amount of cash was received from the discounting?

a) 900,000
b) 990,000
c) 988,000
d) 972,000

25. What amount should be recognized as loss on note receivable discounting?

a) 50,000
b) 40,000
c) 52,000
d) 12,000

26. All the following may be included in cash, except?

a) Currency
b) Money Market Instrument
c) Checking account
d) Traveler Check

27. Bank statements provide information about all of the following, except?

a) Checks cleared during the period.

b) NSF checks
c) Bank charge
d) Error made by the depositor.

28. When the accounts receivables are sold outright, the accounts receivable have been?

a) Pledged
b) Assigned
c) Factored
d) Collateralized.

29. Compensating Balance represents

a) Fund in a bank account that cannot be spent.

b) Balance in a payroll account.
c) Account that is subject to bank service charge.
d) Account on which a bank pays interest.

30. Which of the following is usually considered cash?

a) Certificate of Deposit
b) Checking Account
c) Money Market Certificate
d) DAIC Check