TRADE

AND
NON-TRADE
RECEIVABLES

Prepared by:
Diaz, Jan Angel M.
Sajili, Daisy Diane T.
Cabugnason, Jessa Marie T.
Maglambayan, Marlui Faith A.
Tampadong, Aimee Kathleen S.

Reviewed by:
Ms. Satina S. Muammil, CPA
Table of Contents

1. Summary ………………………………………………… 2-3

2. Theories …………………………………………………. 3 - 16
3. Problems ………………………………………………… 17 - 41
4. Solutions
Theories ………………………………………………. 42
Problems ……………………………………………… 43 - 56
Summary

Accounts receivable are amounts that customers owe the company for normal credit
purchases. Receivables must be paid within an established time frame, called credit terms or
payment terms. Account receivables are classified as current assets assuming that they are
due within one year.
Notes receivable are amounts owed to the company by customers or others who have
signed formal promissory notes in acknowledgment of their debts. Accounts receivable and
notes receivable that result from company sales are called trade receivables, but there are
other types of receivables as well.
Trade receivables are amounts billed by a business to its customers when it delivers
goods or services to them in the ordinary course of business. These billings are typically
documented on formal invoices, which are summarized in an accounts receivable aging
report.
Since not all customer debts will be collected, businesses typically estimate the
amount of debts to be paid and then record an allowance for doubtful accounts. An example
of a common payment term is Net 30, which means that payment is due at the end of 30 days
from the date of invoice. Uncollectible accounts are called bad debts. Companies use two
methods to account for bad debts: the direct write-off method and the allowance method.
The direct write-off method is simpler than the allowance method in that it allows for
one simple entry to reduce accounts receivable to its net realizable value. The allowance
method, which establishes a contra- asset account, allowance for doubtful accounts, or bad
debt provision, that has the effect of reducing the balance for accounts receivable.
Business owners know that some customers who receive credit will never pay their
account balances. GAAP requires companies to use the Allowance Method.
A notes receivable normally requires the debtor to pay interest and extends for time
periods of 30 days or longer. Often a business will allow a customer to convert their overdue
accounts into a notes receivable. Doing so gives the debtor more time to pay. The principle is
the face value of the note. The principle equals the initial amount of credit provided. The
maker of a note is the party who receives the credit and promises to pay the note’s holder.
Notes generally specify an interest rate, which is used to determine how much interest the
maker of the note must pay in addition to the principal.
Notes Receivable represents claims for which formal instruments of credit are issued
as evidence of debt, such as a promissory note.
Non trade receivables are amounts due for payment to an entity other than its normal
customer invoices for merchandise shipped or services performed. Examples of non trade
receivables are amounts owed to a company by its employees for loans or wage advances, tax
refunds owed to it by taxing authorities, or insurance claims owed to it by an insurance
company.

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 Non trade receivables are usually classified as current assets on the balance sheet,
since there is typically an expectation that they will be paid within one year. If you anticipate
that payment will be over a longer period of time, then classify it as a non-current asset. If
there is a large amount of interest receivable from a third party, consider recording it in a
separate interest receivable account.

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 Theories

1. The term "receivables" refers to

a. Amounts due from individuals or companies.
b. Merchandise to be collected from individuals or companies.
c. Cash to be paid to creditors.
d. Cash to be paid to debtors.

2. The receivables initially measured at present amount are subsequently measured at?
a. Recoverable historical cost
b. Amortized cost
c. Transaction cost
d. Face amount

3. Which of the following are also called trade receivables?

a. Accounts receivable
b. Other receivables
c. Advances to employees
d. Income taxes refundable

4. Credit balances in accounts receivable shall be classified as

a. Current liabilities
b. Part of accounts payable
c. Long term liabilities
d. Deduction from accounts receivable

5. Notes or accounts receivables that result from sales transactions are often called
a. Sales receivable
b. Non-trade receivables
c. Trade receivables
d. Merchandise receivables

6. Trade accounts receivable are valued and reported on the balance sheet
a. In the investment section.
b. At gross amounts less sales returns and allowances.
c. At net realizable value.
d. Only if they are not past due.

7. Claims for which formal instruments of credit are issued as proof of the debt are
a. Accounts receivable
b. Interest receivable
c. Notes receivable
d. Other receivables

8. Interest is usually associated with

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a. Accounts receivable
b. Notes receivable
c. Doubtful accounts
d. Bad debts

9. The receivable that is usually evidenced by a formal instrument of credit is a(n)

a. Trade receivable
b. Note receivable
c. Accounts receivable
d. Income tax receivable

10. Trade receivables, which are expected to be realized in cash within the normal operating
cycle or one year, are classified as
a. Current assets
b. Noncurrent assets
c. Accounts receivable
d. Cash

11. Trade receivables are classified as current assets if they are reasonably to be collected
a. Within one year
b. Within the normal operating cycle.
c. Within one year or within normal operating cycle, whichever is shorter.
d. Within one year or within normal operating cycle, whichever is longer.

12. Non-trade receivables are classified as current assets when they are reasonably expected
to be collected
a. Within one year or normal operating cycle, whichever is shorter.
b. Within the normal operating cycle.
c. Within one year or normal operating cycle, whichever is longer.
d. Within one year, the length of the operating cycle withstanding.

13. Which of the following statement is true in relation to presentation of receivables in

statement of financial position?
a. Trade receivables and non-trade receivables are shown separately.
b. Non-trade receivables are presented as noncurrent assets.
c. Trade accounts receivable and trade notes receivable shall be presented separately.
d. Trade receivables and non-trade receivables which are currently collectible shall be
presented as one line item called “trade and other receivables”.

14. Why do companies provide trade discounts?

a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different customers.
d. Both a and c

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15. Trade receivables and nontrade receivables which are currently collectible shall be
presented on the face of the statement of financial position as
a. One line item called trade and other receivables
b. Two line item called trade and other receivables
c. Three line item called trade and other receivables
d. Four line item called trade and other receivables

16. What is the preferable presentation of accounts receivable from officers, employees, or
affiliated companies on a balance sheet?
a. As offsets of capital.
b. By means of footnotes only.
c. As assets but separately from other receivables.
d. As trade notes and accounts receivable if they otherwise qualify as current assets.

17. In accordance with PFRS 15, trade receivables that do not have a significant financing
component are measured at their...
a. Fair value
b. Fair value plus transaction cost
c. Transaction price
d. Cannot be measured

18. In the recognitions of Trade Receivables, in a case when the control over the promised
goods or services is transferred to customer, the entity shall recognize Account Receivables...
a. When the goods are already shipped.
b. When the goods has arrived.
c. Depending on the sale of contract.
d. None of the above

19. Who should pay the shipping fees?

a. The buyer of goods being shipped.
b. The seller of goods being shipped.
c. The delivery man of goods being shipped.
d. The owner of goods being shipped.

20. These are given to encourage orders in large quantities

a. Cash discounts
b. Trade discounts
c. Bulk discounts
d. Mega discounts

21. These are given to encourage prompt payment

a. Cash discounts
b. Trade discounts
c. Bulk discounts
d. Instant discounts

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22. Receivables might be sold to
a. Lengthen the cash-to-cash operating cycle.
b. Take advantage of deep discounts on the cash realizable value of receivables.
c. Generate cash quickly.
d. Finance companies at an amount greater than cash realizable value.

23. Which one of the following is not a primary problem associated with accounts
receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Disposing of accounts receivable

24. Three accounting issues associated with accounts receivable are

a. Depreciating, returns, and valuing
b. Depreciating, valuing, and collecting
c. Recognizing, valuing, and disposing
d. Accrual, bad debts, and disposing

25. Which of the following would require a compound journal entry?

a. To record merchandise returned that was previously purchased on account.
b. To record sales on account.
c. To record purchases of inventory when a discount is offered for prompt payment.
d. To record collection of accounts receivable when a cash discount is taken.

26. A reduction from an invoice price by reason of prompt payment

a. Sales return
b. Freight out
c. Freight in
d. Cash discounts

27. Invoice price minus the cash discount

a. Sales
b. Discount
c. Gross method
d. Net method

28. Collection is made beyond the discount period and classified as other income
a. Cash discount
b. Gross method
c. Net method
d. Sales discount forfeited

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29. When an account becomes uncollectible, the entity has sustained a
a. Loss
b. Gain
c. Bad debt expense
d. Bad debt loss

30. The account title used to record when the collectibility of accounts receivable becomes
doubtful in allowance method.
a. Allowance for bad debts
b. Allowance for uncollectible account
c. Allowance for doubtful accounts
d. Any of these

31. Two bases for estimating uncollectible accounts are

a. percentage of assets and percentage of sales.
b. percentage of receivables and percentage of total revenue.
c. percentage of current assets and percentage of sales.
d. percentage of receivables and percentage of sales.

32. Which of the following holds true for "Percentage of Credit sales"?
a. Prepares a schedule to determine bad debts.
b. This method favors the statement of financial position.
c. Computes for bad debts expense by applying the single estimated percentage for the
period.
d. None of the above

33. Which of the following holds true for "Percentage of Receivable”?

a. The bad debts are recognized based on the ending balance of receivables and not directly
on Sales.
b. This method strictly adheres to matching principle.
c. Larger percentage is applied to older account.
d. None of the above

34. Which of the following holds true for "Aging of receivables"?

a. The bad debts expense is computed by applying percentage.
b. This method favors the income statement in strict adherence to the matching principle.
c. The required balance is computed by applying various estimated percentages to the
breakdown on ending receivables according to ages.
d. None of the above.

35. The percentage of receivables basis for estimating uncollectible accounts emphasizes
a. Cash realizable value.
b. The relationship between accounts receivable and bad debts expense.
c. Income statement relationships.
d. the relationship between sales and accounts receivable.

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36. Which of the following is a generally accepted method of determining the amount of the
adjustment to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance.
b. A percentage of sales not adjusted for the balance in the allowance.
c. A percentage of accounts receivable not adjusted for the balance in the allowance.
d. An amount derived from aging accounts receivable and not adjusted for the balance in the
allowance.

37. The existing balance in Allowance for Doubtful Accounts is considered in computing bad
debts expense in the
a. Direct write-off method.
b. Percentage of receivables basis.
c. Percentage of sales basis.
d. Percentage of receivables and percentage of sales basis.

38. An aging of a company's accounts receivable indicates that P9,000 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a P1,100 credit balance, the
adjustment to record bad debts for the period will require
a. Debit to Bad Debts Expense for P9,000.
b. Debit to Allowance for Doubtful Accounts for P7,900.
c. Debit to Bad Debts Expense for P7,900.
d. Credit to Allowance for Doubtful Accounts for P9,000.

39. Bad Debts Expense is considered

a. An avoidable cost in doing business on a credit basis.
b. An internal control weakness.
c. A necessary risk of doing business on a credit basis.
d. Avoidable unless there is a recession.

40. The percentage of sales basis of estimating expected uncollectibles

a. Emphasizes the matching of expenses with revenues.
b. Emphasizes balance sheet relationships.
c. Emphasizes cash realizable value.
d. Is not generally accepted as a basis for estimating bad debts.

41. When the allowance method is used to account for uncollectible accounts, Bad Debts
Expense is debited when
a. A sale is made.
b. An account becomes bad and is written off.
c. Management estimates the amount of uncollectibles.
d. A customer's account becomes past-due.

42. When an account becomes uncollectible and must be written off.

a. Allowance for Doubtful Accounts should be credited.

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b. Accounts Receivable should be credited.
c. Bad Debts Expense should be credited.
d. Sales should be debited.

43. The collection of an account that had been previously written off under the allowance
method of accounting for uncollectibles
a. Will increase income in the period it is collected.
b. Will decrease income in the period it is collected.
c. Requires a correcting entry for the period in which the account was written off.
d. Does not affect income in the period it is collected.

44. Under the direct write-off method of accounting for uncollectible accounts, Bad Debt
Expense is debited
a. When a credit sale is past due.
b. At the end of each accounting period.
c. Whenever a pre-determined amount of credit sales have been made.
d. When an account is determined to be uncollectible.

45. An alternative name for Bad Debts Expense is

a. Deadbeat Expense.
b. Uncollectible Accounts Expense.
c. Collection Expense.
d. Credit Loss Expense.

46. A reasonable amount of uncollectible accounts is evidence

a. That the credit policy is too strict.
b. That the credit policy is too lenient.
c. Of a sound credit policy.
d. Of poor judgments on the part of the credit manager.

47. Writing off an uncollectible account under the allowance method requires a debit to
a. Accounts Receivable.
b. Allowance for Doubtful Accounts.
c. Bad Debts Expense.
d. Uncollectible Accounts Expense.

48. When the allowance method of recognizing bad debts expense is used, the entry to
recognize that expense
a. Increases net income.
b. Decreases current assets.
c. Has no effect on current assets.
d. Has no effect on net income.

49. The direct write-off method

a. Is acceptable for financial reporting purposes.

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b. Debits Allowance for Doubtful Accounts to record write-offs of accounts.
c. Shows only actual losses from uncollectible accounts receivable.
d. Estimates bad debt losses.

50. What is the normal journal entry when writing-off an account as uncollectible under the
allowance method?
a. Debit Allowance for Bad Debts, credit Accounts Receivable
b. Debit Allowance for Bad Debts, credit Bad Debt Expense
c. Debit Bad Debt Expense, credit Allowance for Bad Debts
d. Debit Accounts Receivable, credit Allowance for Bad Debts

51. What is the normal journal entry for recording bad debt expense under the allowance
method?
a. Debit Allowance for Bad Debts, credit Accounts Receivable
b. Debit Allowance for Bad Debts, credit Bad Debt Expense
c. Debit Bad Debt Expense, credit Allowance for Bad Debts
d. Debit Accounts Receivable, credit Allowance for Bad Debts

52. The Lowery Co. uses the direct write-off method of accounting for uncollectible
accounts receivable. Lowery Co. has a customer whose accounts receivable balance has been
determined to likely be uncollectible. The entry to write off this account would be which of
the following?
a. Debit Allowance for Bad Debts; credit Accounts Receivable
b. Debit Sales Returns and Allowance, credit Accounts Receivable
c. Debit Bad Debt Expense; credit Allowance for Bad Debts
d. Debit Bad Debt Expense; credit Accounts Receivable

53. What is the type of account and normal balance of Allowance for Bad Debt
a. Contra asset, credit
b. Asset, credit
c. Asset, debit
d. Contra asset, debit

54. Which of the following concepts relates to using the allowance method in accounting for
accounts receivable?
a. Bad debt expense is an estimate that is based on historical and prospective information.
b. Bad debt expense is based on the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of the receivables aging.
d. Bad debt expense is management's determination of which accounts will be sent to the
attorney for collection.

55. How can accounting for bad debts be used for earnings management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded as bad debt expense.
c. Using an aging of the accounts receivable balance to determine bad debt expense.

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d. Reversing previous write-offs.

56. Which of the following methods of determining bad debt expense does not properly
match expense and revenue?
a. Charging bad debts with a percentage of sales under the allowance method.
b. Charging bad debts with an amount derived from a percentage of accounts receivable
under the allowance method.
c. Charging bad debts with an amount derived from aging accounts receivable under the
allowance method.
d. Charging bad debts as accounts are written off as uncollectible.

57. Which of the following statements is incorrect regarding the classification of accounts
and notes receivable?
a. Segregation of the different types of receivables is required if they are material.
b. Disclose any loss contingencies that exist on the receivables.
c. Any discount or premium resulting from the determination of present value in notes
receivable transactions is an asset or liability respectively.
d. Valuation accounts should be appropriately offset against the proper receivable accounts.

58. Nontrade receivables are classified as current assets only if they are reasonably expected
to be realized in cash
a. Within one year, the length of the operating cycle notwithstanding.
b. Within the normal operating cycle.
c. Within one year or within the operating cycle, whichever is shorter.
d. Within one year or within the operating cycle, whichever is longer.

59. If collectible beyond one year, nontrade receivables classified as

a. Noncurrent assets
b. Current assets
c. Cash
d. Accounts receivable

60. Which nontrade receivables are usually classified as noncurrent?

a. Advances to supplier
b. Advances to affiliates
c. Advances to employees
d. Dividends receivable

61. A promissory note

a. Is not a formal credit instrument.
b. May be used to settle an accounts receivable.
c. Has the party to whom the money is due as the maker.
d. Cannot be factored to another party.

62. Which of the following is not true regarding a promissory note?

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a. Promissory notes may not be transferred to another party by endorsement.
b. Promissory notes may be sold to another party.
c. Promissory notes give a stronger legal claim to the holder than accounts receivable.
d. Promissory notes may be bearer notes and not specifically identify the payee by name.

63. A note receivable is a negotiable instrument which

a. Eliminates the need for a bad debts allowance.
b. Can be transferred to another party by endorsement.
c. Takes the place of checks in a business firm.
d. Can only be collected by a bank.

64. A company that receives an interest bearing note receivable will

a. Debit Notes Receivable for the maturity value of the note.
b. Credit Notes Receivable for the maturity value of the note.
c. Debit Notes Receivable for the face value of the note.
d. Credit Notes Receivable for the face value of the note.

65. When a note is accepted to settle an open account, notes receivable is debited for the
notes
a. Net realizable value.
b. Maturity value.
c. Face value.
d. Face value plus interest.

66. Short-term notes receivable are reported at

a. Fair market value
b. Face value.
c. Gross realizable value.
d. Maturity value.

67. Short-term notes receivables

a. Have a related allowance account called Allowance for Doubtful Notes Receivable.
b. Are reported at their gross realizable value.
c. Use the same estimations and computations as accounts receivable to determine cash
realizable value.
d. Present the same valuation problems as long-term notes receivables.

68. When a note receivable is dishonored,

a. Interest revenue is never recorded.
b. Bad debts expense is recorded.
c. The maturity value of the note is written off.
d. Accounts Receivable is debited if eventual collection is expected.

69. When a note receivable is honored, Cash is debited for the note's
a. Net realizable value

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b. Maturity value
c. Gross realizable value
d. Face value

70. Does non-interest bearing note bears no interest at all?

a. Yes, as the name implies.
b. No, the interest is already included in the face amount.
c. No, the interest is stated in separate rate.
d. Yes, not all notes bears’ interests.

71. 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

72. Accounting for the interest in a non-interest bearing note receivable is an example of what
aspect of accounting theory?
a. Matching
b. Verifiability
c. Substance over form
d. Form over Substance

73. Notes receivable obtained from the sale of goods or services in the ordinary course of
business classified as:
a. Trade note receivables
b. Accounts Receivables
c. Non-trade note receivables
d. Cash on other's hands

74. The face amount of a note plus interest earned on the due date is called the
a. Realizable value
b. Face value
c. Net realizable value
d. Maturity value

75. The basic issues in accounting for notes receivable include each of the following except
a. Analyzing notes receivable.
b. Disposing of notes receivable.
c. Recognizing notes receivable.
d. Valuing notes receivable.

76. A 60-day note receivable dated June 13 has a maturity date of

a. August 13.
b. August 12.

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c. August 11.
d. August 10.

77. The maturity value of a $90,000, 10%, 60-day note receivable dated July 3 is
a. $90,000.
b. $99,000.
c. $105,000.
d. $91,500.

78. A 90-day note dated April 13 has a maturity date of

a. July 10
b. July 11
c. July 12
d. July 13

79. The two key parties to a promissory note are the

a. Maker and a bank.
b. Debtor and the payee.
c. Maker and the payee.
d. Sender and the receiver.

80. When calculating interest on a promissory note with the maturity date stated in terms of
days, the
a. Maker pays more interest if 365 days are used instead of 360.
b. Maker pays the same interest regardless if 365 or 360 days are used.
c. Payee receives more interest if 360 days are used instead of 365.
d. Payee receives less interest if 360 days are used instead of 365.

81. 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.

82. On March 1, 2020, an entity received a two-year note receivable bearing interest at
market rate. The face amount of the note receivable are due on the end of February 2022, the
interest receivable on Dec 31, 2020 would consist of amount representing
a. Twelve months of accrued interest income.
b. Ten months of accrued interest income.
c. Two months of accrued interest income.
d. The excess on March 1, 2020 of the present value of note receivable over its face amount.

83. An entity sells office equipment on cash basis or on 6-month installment basis. On
January 01, 2020, a desktop set with a cash price P200,000 was sold at installment price of
P220,000 the recognition will be...

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a. Initially at cash price equivalent, the P20,00 difference will be amortized over the credit
term as interest income.
b. The initial cost will be P220,000 since it is in installments.
c. There’s no need to initially record this transaction, direct to adjustments.
d. Better ask the buyer to buy it on cash basis instead.

84. Which of the following statements is true in terms of the difference between "FV of P1"
and "PV of P1"?
a. The FV of P1 will only determine the interest amount earned in the present, while the PV
of P1 will determine the interest amount earned in the future.
b. The FV of P1 will determine the worth of money in the future deposited from the start
while the PV of P1 also does the same in different way.
c. The FV of P1 is used to determine the future value based on the beginning deposit, while
the PV of P1 is used to determine the amount that should be deposited to arrive at a certain
value in the future.
d. One of them does not need the relationship of passage of time to determine the value of
money.

85. Which of the following statements is true in terms of the difference between simple
interest and compound interest?
a. Simple interest applies greater interests compared to compound interest, using the same
interest rate.
b. Under simple interest, interest is earned only on the principal. Under compound interest,
interest is earned on both the principal and the interest.
c. Simple interest determines the interest already paid while compound interest determines
the unpaid portion.
d. Simple interest determines the current portion of interest, while compound interest
determines the non-current portion.

86. When the contractual cash flows of a debt instrument measured at amortized cost are due
in lump sum, the present value (PV) factor uses to discount the future cash flows is
a. PV of P1
b. PV of ordinary annuity P1
c. PV of an annuity due P1
d. PV of deferred annuity

87. FULL OF LIFE Co, received a 5-year, 5% note receivable from one of its customers.
The current market interest rate at the date of receipt of note was 10%. FULL OF LIFE
should initially recognize the receivable at
a. Face Amount
b. Present Value
c. Appraised Value
d. Fair value less cost to sell

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88. On July 1 of the current year, an entity obtained a two year 8% note receivable for service
rendered. At that time, the market rate was 12%. 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. 6% of the face amount of the note
b. 4% of the face amount of the note
c. 6% of the present value of the note
d. 4% of the present value of the note

89. Noninterest-bearing long term notes are initially measured at

a. Face value
b. Present value
c. Amortized cost
d. Realizable value

90. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

True or False

1. All claims held against customers and others for money, goods, or services are reported
as current assets.
2. Trade receivables include notes receivable and advances to officers and employees.
3. Trade discounts are used to avoid frequent changes in catalogs and to alter prices for
different quantities purchased.
4. In the gross method, sales discounts are reported as a deduction from sales.
5. The net amount reported for short-term receivables is not affected when a specific
account receivable is determined to be uncollectible.
6. The percentage-of-receivables approach of estimating uncollectible accounts emphasizes
matching over valuation of accounts receivable.
7. The percentage-of-sales method results in a more accurate valuation of receivables on the
balance sheet.
8. Companies record and report long-term notes receivable at the present value of the cash
they expect to collect.
9. When the stated rate of interest exceeds the effective rate, the present value of the note
receivable will be less than its face value.
10. Notes receivable are generally reported as noncurrent assets.

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 Problems

1. MJ Co, sell inventory with a list price of P20,000 on account under credit terms 30%, 15%,
2/10, n/30. The entity estimates that only 75% of the cash discount to be taken, customer's
avail of discount is probable.
Q1. Solve for the discount expected to be taken
Q2. Determine the transaction price
Q3. Appropriate journal entries of the following using the "sales discount" account.
a. Sale on account
b. Portion collected within discount period
c. Portion collected beyond discount period

2. Refer to the 1st problem, assume that accounts receivable is not yet settled by the end of
the reporting period and the entity changes its estimate of cash discount to be taken to 40%.
Q4. Revise the discount expected to be taken
Q5. Revise the transaction price
Q6. Journal entry of adjustment
Q7. Amount of account receivable to be reported on the year-end statement of financial
position

3. Using the Percentage of Credit sales method, JOY Co. has the following information on
December 31, 2020 before any yearend adjustments.

Allowance for doubtful accounts, Jan 1. P12,000

Write offs 5,000
Recoveries 2,500
Sales (including cash sales of P150,000) 700,000
Sales Returns and discounts (including P1,000 sale returns on cash sales) 6,000
Accounts receivables, Dec 31 200,000
Percentage of credit sales. 3%

Q8. Bad debt expense

Q9. Allowance for doubtful accounts on December 31
Q10. Net realizable value of accounts receivable.

4. Bangko Sentral granted a loan to an entity on Jan 1, 2020. The interest of the loan is 8%
payable annually starting Dec 31, 2018. The loan matures in three years on Dec 31, 2022.

Principal amount P 7,000,000

Origination fee charged to the entity 432,200
Direct origination fee costs incurred 150,000

The effective rate of the loan is 12%

Q11. What is the carrying amount of the loan on Jan 1, 2020?

17
a. P 7,000,000
b. P 7, 350,000
c. P 6,717,800
d. P 6,350,000

Q12. What is the interest income for 2020?

a. P296, 136
b. P246, 100
c. P347, 236
d. P246, 136

5. Lycan Company provided the following information relating to accounts receivable from
the current year:

Accounts receivable on January 1 P 1,300,000

Credit sales 5,400,000
Collections from customers, excluding recovery 4,750,000
Accounts written off 125,000
Collection of accounts written off in prior year
(customer credit was not reestablished) 25,000
Estimated uncollectible receivables per aging
of receivables at December 31 165,000

Q13. What is the balance of the accounts receivable, before allowance for doubtful accounts
on December 31?

a. 1,825,000
b. 1,850,000
c. 1,950,000
d. 1,990,000

6. Jury Company provided following data relating to accounts receivable for the current year:

Accounts receivable, January 1 P 650,000

Credit sales 2,700,000
Sales Returns 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000

Q14. What amount should be reported as net realizable value of accounts receivable on
December 31?

18
a. 1,200,000
b. 1,125,000
c. 1,085,000
d. 925,000

7. Fanny Company provided the following data for the current year:

Sales on account 3,600,000

Notes received to the settle accounts 400,000
Provision for doubtful accounts 90,000
Accounts receivable written off 25,000
Purchases on account 3,900,000
Payments to creditors 3,200,000
Discounts allowed by creditors 260,000
Merchandise returned by customer 15,000
Collections received to settle accounts 2,450,000
Notes given to creditors in settlement of accounts 250,000
Merchandise returned to suppliers 70,000
Payments on notes payable 100,000
Discounts taken by customers 40,000
Collections received in settlement of notes 180,000

Q15. What is the net realizable value of accounts receivable at year-end?

a. 605,000
b. 890,000
c. 825,000
d. 670,000

8. On December 31, 2016, Sarao Company reported that the current receivables consisted of
the following:

Trade accounts receivable P 930,000

Allowance for uncollectible accounts (20,000)
Claim against shipper for goods lost
in transit in November 30,000
Selling price of unsold goods sent by Miami
on consignment at 130% of cost and not
included in Miami’s ending inventory 260,000
Security deposit on lease of warehouse
used for storing some inventories 300,000
Total P 1,500,000

19
Q16. On December 31, 2016, what total amount should be reported as trade and other
receivables under current assets?

a. P 940,000
b. P 1,200,000
c. P 1,240,000
d. P 1,500,000

9. At the end of first year of operations, Wonderful Company had a net realizable value of
accounts receivable of P5,000,000.

During the year, the entity recorded charges to bad debt expense of P800,000 and wrote off as
uncollectible accounts receivable f P200,000.

Q17. What is the year-end accounts receivable balance before the allowance for doubtful
accounts?

a. 5,600,000
b. 5,200,000
c. 5,000,000
d. 6,000,000

10. Arian Company used the allowance method of accounting for bad debts.
The following summary schedule was prepared from an aging of accounts receivable
outstanding on December 31:

Number of days outstanding Amount Probability of collection

0 - 30 days P 5,000,000 .98

31 - 60 days 2,000,000 .90
Over 60 da 1,000,000 .80

The following additional information is available for the current year:

Net credit sales for the year 40,000,000

Allowance for doubtful accounts:
Balance, January 1 450,000 (cr)
Balance before adjustment, December 31 20,000 (dr)

The entity based the estimate of doubtful accounts on the aging of accounts receivable.

Q18. What amount should be recognized as doubtful accounts expense for the current year?

a. 470,000
b. 480,000

20
c. 500,000
d. 520,000

11. Manila Company provided the following accounts abstracted from the unadjusted trial
balance at year-end:

Debit Credit
Accounts receivable P 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales P 20,000,000

The entity estimated that 3% of the gross accounts receivable will become uncollectible.

Q19. What amount should be recognized as doubtful accounts expense for the current year?

a. 110,000
b. 150,000
c. 190,000
d. 600,000

12. On January 1, 2016, Jimin Company had a credit balance of 260,000 in the allowance for
uncollectible accounts. Based on past experience, 2% of credit sales would be uncollectible.

During the current year, the entity wrote off P325,000 of uncollectible account. Credit sales
for the year totaled P9,000,000.

Q20. What is the uncollectible accounts expense for the year?

a. 325,000
b. 180,000
c. 440,000
d. 65,000

Q21. On December 31, 2016, what amount should be reported as allowance for uncollectible
accounts?

a. 115,000
b. 180,000
c. 245,000
d. 440,000

13. Horus Company provided for doubtful accounts expense monthly at 3% of credit sales.
The balance in the allowance for doubtful accounts was P1,000,000 on January, 2016.

21
During 2016, credit sales totaled P20,000,000, interim provisions for doubtful accounts were
made at 3% of credit sales, P200,000 accounts were written off amounted to P50,000. An
aging of accounts receivable was made on December 31, 2016.

1-60 days P 6,000,000 10% uncollectible

61-180 days 2,000,000 20% uncollectible
181-360 days 1,500,000 30% uncollectible
More than one year __500,000 50% uncollectible
P 10,000,000

Based on the review of the “more than one year” category, additional accounts of P100,000
are to be written off on December 31, 2016.

Q22.What amount should be reported as doubtful accounts expense for the current year?

a. P 2,250,000
b. P 1,650,000
c. P 900,000
d. P 850,000

Q23. What is the year-end adjustment to the allowance for doubtful accounts on December
31, 2016?

a. P 900,000 debit
b. P 900,000 credit
c. P 300,000 debit
d. P 300,000 credit

Q24. What is the net realizable value of accounts receivable on December 31, 2016?

a. P 9,900,000
b. P 8,250,000
c. P 7.650,000
d. P 8,450,000

14. On January 1, 2020, LEAF Company sold goods to BREW Company, BREW signed a
non-interest bearing note requiring payment of P100,000 annually for five years. The first
payment was made on January 1, 2020.

The prevailing rate of interest for this type of note at date of issuance was 12%.

PV of an ordinary annuity of 1 at 12% for 4 periods. = 3.04

PV of an ordinary annuity of 1 at 12% for 5 periods. = 3.60

Q25. What amount should be reported as sales revenue in January 2020?

22
a. P 404,000
b. P 401,600
c. P 304, 000
d. P 305,600

Q26. What is the carrying amount of the note receivable on January 1, 2020?

a. P 404,000
b. P 304,000
c. P 400,000
d. P 305,600

Q27. What is the interest income for 2020?

a. P 44,250
b. P 34,840
c. P 36,480
d. P 35,360

Q28. What is the carrying amount of note receivable on December 31, 2020?

a. P 590,052
b. P 300,520
c. P 360,250
d. P 340,480

15. On December 31, 2020, BLACKTIRE Co, sold a secondhand Car with carrying amount
of P1,300,000 in exchange of a non-interest bearing note of P2,000,000 requiring five annual
payments of P400,000. The first payment was made on December 31, 2021.

The market interest for similar note was 10%. The present value of an ordinary annuity of 1
at 10% is 3.80 for five periods and 3.17 for four periods.

Q29. What is the carrying amount of the note receivable on December 31, 2020?

a. P 580,000
b. P 480,000
c. P 520,000
d. P 420,000

Q30. What is the gain on sale of equipment to be recognized in 2020?

a. P 380,200
b. P 240,020

23
c. P 220,000
d. P 320,000

Q31. What should be recognized as interest income for 2021?

a. P 168,000
b. P 152,000
c. P 158,000
d. P 142,000

Q32. What is the carrying amount of the note receivable on December 31, 2021?

a. P 1,272,000
b. P 2,500,000
c. P 1,825,000
d. P 2,325,000

16. On December 31, 2019 balance sheet of MERC Company, the current receivables
consisted the following:

Trade accounts receivable P230,000

Allowance for uncollectible accounts ( 6,000)
Claims against shipper for goods lost in transit (Feb. 2020) 8,000
Selling price of unsold goods sent by MERC to consignee 60,000
Security deposit on lease of warehouse used for storing
inventories 85,000
Total P 377,000

Q33. At December 31,2019, how much should be MERC’s total current net receivables?

a. P232,000
b. P290,000
c. P244,000
d. P377,000

Q34. Hamilton Corp. has outstanding accounts receivable totaling P2.54 million as of
December 31 and sales on credit during the year of P12.8 million. There is also a debit
balance of P6,000 in the allowance for doubtful accounts. If the company estimates that 1%
of its net credit sales will be uncollectible, what will be the balance in the allowance for
doubtful accounts after the year-end adjustment to record bad debt expense?

a. P 25,400.
b. P 31,400.
c. P 122,000.
d. P 134,000.

24
Q35. Piccadilly Corp. has outstanding accounts receivable totaling P6.5 million as of
December 31 and sales on credit during the year of P24 million. There is also a credit balance
of P12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its
outstanding receivables will be uncollectible, what will be the amount of bad debt expense
recognized for the year?

a. P 532,000.
b. P 520,000.
c. P 1,920,000.
d. P 508,000.

Q36. Arlington Corp. has outstanding accounts receivable totaling P3 million as of December
31 and sales on credit during the year of P15 million. There is also a debit balance of P12,000
in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding
receivables will be uncollectible, what will be the balance in the allowance for doubtful
accounts after the year-end adjustment to record bad debt expense?

a. P 1,200,000
b. P 228,000
c. P 240,000
d. P 252,000

Q37. At the close of its first year of operations, December 31, 2010, Bond Company had
accounts receivable of P540,000, after deducting the related allowance for doubtful accounts.
During 2010, the company had charges to bad debt expense of P90,000 and wrote off, as
uncollectible, accounts receivable of P40,000. What should the company report on its balance
sheet at December 31, 2010, as accounts receivable before the allowance for doubtful
accounts?

a. P 670,000
b. P 590,000
c. P 490,000
d. P 440,000

Q38. Before year-end adjusting entries, Mono Company's account balances at December 31,
2010, for accounts receivable and the related allowance for uncollectible accounts were
P600,000 and P45,000, respectively. An aging of accounts receivable indicated that P62,500
of the December 31 receivables are expected to be uncollectible. The net realizable value of
accounts receivable after adjustment is

a. P 582,500
b. P 537,500
c. P 492,500
d. P 555,000

25
Q39. During the year, Kronor Company made an entry to write off a P4,000 uncollectible
account. Before this entry was made, the balance in accounts receivable was P50,000 and the
balance in the allowance account was P4,500. The net realizable value of accounts receivable
after the write-off entry was

a. P 50,000
b. P 49,500
c. P 41,500
d. P 45,500

Q40. The following information is available for Murphy Company:

Allowance for doubtful accounts at December 31, 2009 P 8,000

Credit sales during 2010 400,000
Accounts receivable deemed worthless and written off during 2010 9,000

As a result of a review and aging of accounts receivable in early January 2011, however, it
has been determined that an allowance for doubtful accounts of P5,500 is needed at
December 31, 2010. What amount should Murphy record as "bad debt expense" for the year
ended December 31, 2010?

a. P 4,500
b. P 5,500
c. P 6,500
d. P 13,500

Use the following information for questions Q41 and Q42.

A trial balance before adjustments included the following:

Debit Credit
Sales P 425,000
Sales returns and allowance P14,000
Accounts receivable 43,000
Allowance for doubtful accounts 760

Q41. If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the
adjustment is

a. P 6,700
b. P 8,220
c. P 8,500
d. P 9,740

26
Q42. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the
amount of the adjustment is

a. P 3,540
b. P 4,300
c. P 4,224
d. P 5,060

Q43. Lancer Company has the following account balances at year-end:

Accounts receivable $60,000

Allowance for doubtful accounts 3,600
Sales discounts 2,400

Lancer should report accounts receivable at a net amount of

a. P 54,000
b. P 56,400
c. P 57,600
d. P 60,000

Q44. Smitten Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
P10,000. During 2010, it wrote off P7,200 of accounts and collected P2,100 on accounts
previously written off. The balance in Accounts Receivable was P200,000 at 1/1 and
P240,000 at 12/31. At 12/31/10, Smitten estimates that 5% of accounts receivable will prove
to be uncollectible. What is Bad Debt Expense for 2010?

a. P 2,000
b. P 7,100
c. P 9,200
d. P 12,000

Q45. Black Pink Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts
of P12,000. During 2010, it wrote off P8,640 of accounts and collected P2,520 on accounts
previously written off. The balance in Accounts Receivable was P240,000 at 1/1 and
P288,000 at 12/31. At 12/31/10, Black estimates that 5% of accounts receivable will prove to
be uncollectible. What should Black Pink report as its Allowance for Doubtful Accounts at
12/31/10?

a. P 5,760
b. P 5,880
c. P 8,280
d. P 14,400

Q46. Shell Company has the following account balances at year-end:

27
Accounts receivable P 80,000
Allowance for doubtful accounts 4,800
Sales discounts 3,200

Shell should report accounts receivable at a net amount of

a. P 72,000
b. P 75,200
c. P 76,800
d. P 80,000

Q47. Van Go Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
P20,000. During 2010, it wrote off P14,400 of accounts and collected P4,200 on accounts
previously written off. The balance in Accounts Receivable was P400,000 at 1/1 and
P480,000 at 12/31. At 12/31/10, Van Go estimates that 5% of accounts receivable will prove
to be uncollectible. What is Bad Debt Expense for 2010?

a. P 4,000
b. P 14,200
c. P 18,400
d. P 24,000

Q48. Moore Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
P15,000. During 2010, it wrote off P10,800 of accounts and collected P3,150 on accounts
previously written off. The balance in Accounts Receivable was P300,000 at 1/1 and
P360,000 at 12/31. At 12/31/10, Moore estimates that 5% of accounts receivable will prove
to be uncollectible. What should Moore report as its Allowance for Doubtful Accounts at
12/31/10?

a. P 7,200
b. P 7,350
c. P 10,350
d.P18,000

Q49. On the December 31, 2007 balance sheet of YTC Co., the current receivables consisted
of the following:

Trade accounts receivable P 75,000

Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 2007) 3,000
Selling price of unsold goods sent by Yount on consignment
at 130% of cost (not included in Yount's ending inventory) 26,000
Security deposit on lease of warehouse used
for storing some inventories 30,000

28
Total P 132,000

At December 31, 2007, the correct total of Yount's current net receivables was

a. P76,000
b. P102,000
c. P106,000
d. P132,000

Q50. Ava Co. prepared an aging of its accounts receivable at December 31, 2007 and
determined that the net realizable value of the receivables was P300,000. Additional
information is available as follows:

Allowance for uncollectible accounts at 1/1/07—credit balance P 34,000

Accounts written off as uncollectible during 2007 23,000
Accounts receivable at 12/31/07 325,000
Uncollectible accounts recovered during 2007 5,000

For the year ended December 31, 2007, May's uncollectible accounts expense would be

a. P25,000
b. P23,000
c. P16,000
d. P9,000

Q51. For the year ended December 31, 2007, Jordan Co. estimated its allowance for
uncollectible accounts using the year-end aging of accounts receivable. The following data
are available:

Allowance for uncollectible accounts, 1/1/07 P 56,000

Provision for uncollectible accounts during 2007
(2% on credit sales of $2,000,000) 40,000
Uncollectible accounts written off, 11/30/07 46,000

Estimated uncollectible accounts per aging, 12/31/07 P69,000. After year-end adjustment, the
uncollectible accounts expense for 2007 should be

a. P46,000
b. P62,000
c. P9,000
d. P59,000

Q52. Nova Co.'s allowance for uncollectible accounts was P95,000 at the end of 2007 and
P90,000 at the end of 2006. For the year ended December 31, 2007, King reported bad debt

29
expense of P13,000 in its income statement. What amount did King debit to the appropriate
account in 2007 to write off actual bad debts?

a. P5,000
b. P8,000
c. P13,000
d. P18,000

Q53. The following accounts were abstracted from Todd Co.'s unadjusted trial balance at
December 31, 2007:
Debit Credit
Accounts receivable P750,000
Allowance for uncollectible accounts 8,000
Net credit sales P3,000,000

Todd estimates that 2% of the gross accounts receivable will become uncollectible. After
adjustment at December 31, 2007, the allowance for uncollectible accounts should have a
credit balance of

a. P60,000
b. P52,000
c. P3,000
d. P15,000

Q54. On January 1, 2006, Infinite Co. exchanged equipment for a P400,000 zero-interest-
bearing note due on January 1, 2009. The prevailing rate of interest for a note of this type at
January 1, 2006 was 10%. The present value of P1 at 10% for three periods is 0.75. What
amount of interest revenue should be included in Marr's 2007 income statement?

a. P0
b. P30,000
c. P33,000
d. P40,000

Q55. At the close of its first year of operations, December 31, 2007, Jordan Company had
accounts receivable of P540,000, after deducting the related allowance for doubtful accounts.
During 2007, the company had charges to bad debt expense of P90,000 and wrote off, as
uncollectible, accounts receivable of P40,000. What should the company report on its balance
sheet at December 31, 2007, as accounts receivable before the allowance for doubtful
accounts?

a. P670,000
b. P590,000
c. P490,000
d. P440,000

30
Q56. Before year-end adjusting entries, Bliss Company's account balances at December 31,
2007, for accounts receivable and the related allowance for uncollectible accounts were
P600,000 and P45,000, respectively. An aging of accounts receivable indicated that P62,500
of the December 31 receivables are expected to be uncollectible. The net realizable value of
accounts receivable after adjustment is

a. P582,500
b. P537,500
c. P492,500
d. P555,000

Q57. During the year, Jann Company made an entry to write off a P4,000 uncollectible
account. Before this entry was made, the balance in accounts receivable was P50,000 and the
balance in the allowance account was P4,500. The net realizable value of accounts receivable
after the write-off entry was

a. P50,000
b. P49,500
c. P41,500
d. P45,500.

Q58. The following information is available for Taylor Company:

Allowance for doubtful accounts at December 31, 2006 P 8,000

Credit sales during 2007 400,000
Accounts receivable deemed worthless and written off during 2007 9,000

As a result of a review and aging of accounts receivable in early January 2008, however, it
has been determined that an allowance for doubtful accounts of P5,500 is needed at
December 31, 2007. What amount should Reagan record as "bad debt expense" for the year
ended December 31, 2007?

a. P4,500
b. P5,500
c. P6,500
d. P13,500

Use the following information for Q59 and Q60.

A trial balance before adjustments included the following:

Debit Credit
Sales P425,000
Sales returns and allowance P14,000
Accounts receivable 43,000

31
 Allowance for doubtful accounts 760

Q59. If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the
adjustment is

a. P6,700
b. P8,220
c. P8,500
d. P9,740

Q60. If the estimate of uncollectible is made by taking 10% of gross accounts receivables, the
amount of the adjustment is

a. P3.540
b. P4,300
c. P4,224
d. P5,060

Q61. Parker Company has the following account balances at year-end:

Accounts receivable P 60,000

Allowance for doubtful accounts 3,600
Sales discounts 2,400

Simpson should report accounts receivable at a net amount of

a. P54,000
b. P56,400
c. P57,600
d. P60,000

Q62. Cameron Corporation had a 1/1/07 balance in the Allowance for Doubtful Accounts of
P10,000. During 2007, it wrote off P7,200 of accounts and collected P2,100 on accounts
previously written off. The balance in Accounts Receivable was P200,000 at 1/1 and
P240,000 at 12/31. At 12/31/07, Holtzman estimates that 5% of accounts receivable will
prove to be uncollectible. What is Bad Debt Expense for 2007?

a. P2,000
b. P7,100
c. P9,200
d. 12,000

Q63. Brooklyn Corporation had a 1/1/07 balance in the Allowance for Doubtful Accounts of
P12,000. During 2007, it wrote off P,640 of accounts and collected P2,520 on accounts
previously written off. The balance in Accounts Receivable was P240,000 at 1/1 and

32
P288,000 at 12/31. At 12/31/07, Rusch estimates that 5% of accounts receivable will prove to
be uncollectible. What should Rusch report as its Allowance for Doubtful Accounts at
12/31/07?

a. P5,760
b. P5,880
c. P8,280
d. P14,400

Q64. Logan Company has the following account balances at year-end:

Accounts receivable P 80,000
Allowance for doubtful accounts 4,800
Sales discounts 3,200

Sandler should report accounts receivable at a net amount of

a. P72,000
b. P75,200
c. P76,800
d. P80,000

Use the following information to answer Q65 and Q66.

Swiftie Company has an 8% note receivable dated April 30, 2018 in the original amount of
P1,800,000.
Payments of P450,000 in principal plus accrued interest are due annually on May 1,2019,
2020, 2021, 2022.

Q65. What is the balance of note receivable on May 1, 2019?

a. P 1,800,000
b. P 1,350,000
c. P 0
d. P 450,000

Q66. In the April 30, 2020 statement of financial position, what amount should be reported as
a current asset for interest on the note receivable?
a. P 108,000
b. P 36,000
c. P 72,000

d. P 0

Use the following information to answer Q67 and Q68.

33
On January 1, 2019, EXOL Company sold equipment with a carrying amount of P3,600,000
in exchange for a P5,500,000 noninterest-bearing note due January 1, 2022. There was no
established exchange price for the equipment.
The prevailing rate of interest for a note of this type on January 1, 2019 was 11%. The
present value of 1 at 11% for three periods is 0.73.

Q67. What amount should be reported as interest income for 2019?

a. P 1,380,000
b. P 1,480,000
c. P 1,685,000
d. P1,485,000

Q68. What amount should be reported as gain or loss on sale of equipment?

a. P 425,000 loss
b. P 425,000 gain
c. P 415,000 gain
d. P 415,000 loss
Odette Company had the following information relating to its accounts receivable for the year
ended December 31, 2020.
Accounts receivable P 1,500,000
Allowances for doubtful accounts 150,000
Credit sales 6,000,000
Collections from customers 4,700,000
Accounts written off 100,000
Estimated uncollectible accounts per
aging of accounts receivable- December 31 200,000

Q69. What is the balance of accounts receivable on December 31, 2020?

a. P2,500,000
b. P2,700,000
c. P2,550,000
d. P2,650,000

The following information relates to accounts receivable of Irithel Company for the year
2020.
Accounts receivable P 1,300,000
Credit sales 5,500,000
Sales return 150,000
Accounts written off 100,000
Collections from customers 5,000,000
Estimated future sales return at 12/31 50,000
Estimated uncollectible accounts at 12/31 250,000

34
Q70. What amount should Irithel report as net realizable value of accounts receivable at
December 31, 2020?
a. P1,550,000
b. P1,250,000
c. P1,300,000
d. P1,500,000

On the December 31, 2020 balance sheet of Lylia Company, the current receivables consisted
of the following:
Trade accounts receivable P 2,000,000
Allowance for doubtful accounts (100,000)
Claim against shipper for goods lost in transit Nov. 2020 300,000
Selling price of unsold goods sent by Lylia on consignment
at 150% of cost (not included in Lylia’s ending inventory) 600,000
Security deposit on lease of warehouse 200,000
Total P 3,000,000

Q71. Lylia’s December 31, 2020 balance sheet should show current trade and other
receivables at
a. P2,200,000
b. P2,400,000
c. P2,300,000
d. P3,000,000

An analysis and aging of Lesly Company’s account receivables at December 31, 2020,
disclosed the following:
Accounts receivable P 1,500,000
Allowance for uncollectible accounts, per book 50,000
Accounts estimated to be uncollectible 100,000

Q72. At December 31, 2020, the net realizable value of accounts receivable should be
a. P1,400,000
b. P1,450,000
c. P1,350,000
d. P1,500,000

At the end of its first year of operations, December 31, 2020, Vale Company had accounts
receivable of P6,000,000, net of the related allowance for doubtful accounts. During 2020,
Vale recorded changes to bad debts expense of P900,000 and wrote off P200,000 of
uncollectible accounts receivable.
Q73. On December 31,2020, how much should Vale report as account receivable before the
allowance for doubtful accounts?
a. P6,000,000
b. P6,200,000
c. P6,700,000

35
d. P7,100,000

On January 1, 2020, Lancelot Company’s allowance for doubtful accounts had a credit
balance of P300,000. During 2020 Lancelot charged P650,000 to doubtful accounts expense,
wrote off P450,000 of uncollectible accounts receivable, and unexpectedly recovered
P100,000 of bad debts written off in the prior year.
Q74. The allowance for doubtful accounts balance ay December 31, 2020 would be
a. P500,000
b. P600,000
c. P650,000
d. P950,000

ML Company prepared an aging of its accounts receivable at December 31, 2020 and
determined that the net realizable value of the accounts receivable was P2,500,000.
Additional information is available as follows:
Allowance for uncollectible accounts 1/1 P 280,000
Accounts written off as uncollectible 230,000
Accounts receivable at 12/31 2,700,000
Uncollectible accounts recovery 50,000

Q75. For the year ended December 31, 2020 ML’s uncollectible accounts expense would be
a. P230,000
b. P200,000
c. P150,000
d. P100,000

Diggie Company’s allowance for doubtful accounts was P200,000 at the end of 2020 and
P180,000 at the end of 2019. For the year ended December 31, 2020, Diggie reported
doubtful accounts expense of P50,000.
Q76. What amount did Diggie debit to the appropriate account in 2020 to write off actual bad
debts?
a. P30,000
b. P20,000
c. P50,000
d. P70,000

On March 31, 2020, Valir Company had an unadjusted credit balance of P100,000 in its
allowance for uncollectible accounts. An analysis of trade accounts receivable at that date
revealed the following:
Age Amount Estimated uncollectible
0-30days P 6,000,000 5%
31-60days 400,000 10%
Over 60 days 200,000 150,000

36
Q77. What amount should Valir report as allowance for uncollectible accounts in its March
31, 2020, balance sheet?
a. P490,000
b. P390,000
c. P590,000
d. P340,000

The following information pertains to Sivanna Company’s accounts receivable at December

31, 2020.
Days Estimated % Uncollectible
Outstanding Amount
0-60 days P 1,200,000 1%
61-120 days 900,000 2%
Over 120 days 1,000,000 6%
P 3,100,000
During 2020, Silvanna wrote off P70,000 in accounts receivable and recovered P20,000 that
had been written off in prior years. Silvanna’s December 31, 2019, allowance for
uncollectible accounts was P60,000.
Q78. Under the aging method, what amount should of uncollectible accounts expense should
Silvanna report for the year 2020?
a. P90,000
b. P80,000
c. P70,000
d. P60,000

Alice Company sells to wholesalers on terms 2/15, net 30. Alice has no cash sales but 50% of
Alice customers take advantage of the discount. An analysis of Alice accounts receivable at
December 31, 2020 revealed the following:
Age Amount Collectible
0 days P 5,000,000 100%
16-30 days 3,000,000 95%
31-60 days 250,000 90%
Over 60 days 50,000 50%
P 8,300,000
Q79. What amount should Alice report as allowance for sales discount?
a. P200,000
b. P100,000
c. P83,000
d. P50,000

Lolita Company operates in an industry that has a high rate of bad debts. On December 31,
2020, before any year-end adjustments, the accounts receivable balance was P6,000,000 and
its allowance for doubtful accounts balance was P300,000. The year-end balance reported for
the allowance for doubtful accounts is based on the following schedule:

37
Time outstanding Accounts receivable Probability of collection
Under 15 days P 3,000,000 .96
16-30 days 2,000,000 .90
31-45 days 400,000 .80
46-60 days 300,000 .70
61-75 days 200,000 .65
Over 75 days 100,000 .00

The accounts which have been outstanding over 75 days and have zero probability of
collection would be written off immediately.
Q80. What is the appropriate balance for the allowance for doubtful accounts on December
31, 2020?
560,000
660,000
260,000
360,000

The following accounts were abstracted from Harith Company’s unadjusted trial balance at
December 31, 2020.
Debit Credit
Accounts receivable P 3,000,000
Allowance for doubtful accounts 10,000
Net credit sales P 8,000,000

Harith estimates that 3% of the gross accounts receivable will become uncollectible.
Q81. What should be the doubtful accounts expense for 2020?
a. P240,000
b. P100,000
c. P90,000
d. P80,000

Gusion Company’s trial balance at December 31, 2020, included the following accounts:
Debit Credit
Allowance for doubtful accounts P 5,000
Sales P 7,200,000
Sales return 200,000

Q82. Gusion estimates its uncollectible receivables at 2% of net sales. For 2020, Gusion
should report doubtful accounts expense of
a. P140,000
b. P145,000
c. P135,000
d. P144,000

Ruby Company provides for doubtful accounts expense at the rate of 4% of credit sales. The
following data are available for 2020.
38
Allowance for doubtful accounts, 1/1 P 40,000
Accounts written off as uncollectible 30,000
Collections of accounts written off
(customer credit was re-established) 10,000
Credit sales 5,000,000

Q83. The allowance for doubtful accounts at December 31, 2020 should be
a. 220,000
b. 200,000
c. 210,000
d. 240,000

Effective with the year ended December 31, 2020, Karrie 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, 1/1 P250,000

Provision for doubtful accounts during the year
(2% on credit sales of P10,000,000) 200,000
Accounts written off 205,000
Estimated uncollectible accounts per aging, 12/31 220,000

Q84. After year-end adjustment, the doubtful accounts expense of 2020 should be
a. P220,000
b. P205,000
c. P200,000
d. P175,000

On December 31, 2020, the accounts receivable control account of Bruno Company had a
balance of P1,910,000. An analysis of the accounts receivable account showed the following:

Accounts known to be worthless P 25,000

Advances payments to creditors on purchase orders 100,000
Advances to affiliated companies 250,000
Customers’ accounts reporting credit balances arising from
Sales return (150,000)
Interest receivable on bonds 100,000
Trade accounts receivable- unassigned 500,000
Subscription receivable due in 30 days 550,000
Trade accounts receivable- assigned ( Finance Company’s equity
in assigned accounts is P100,000) 250,000
Trade installments receivable due 1-18months including
unearned finance charge of P20,000 220,000
Trade accounts receivable from officers, due currently 15,000

39
Trade accounts on which post-dated checks are held ( no
entries were made on receipt of checks) _ 50,000
Total P 1,910,000

Q85. The correct balance of trade accounts receivable on December 31, 2020 is
a. P1,015,000
b. P1,035,000
c. P2,060,000
d. P 915,000

Harley Company had the following account balances at December 31, 2020:
Accounts receivable P 1,200,000
Allowance for doubtful accounts
(before any provisions for doubtful accounts) 20,000
Credit sales 3,500,000

Harley is considering the following methods of estimating doubtful accounts expense for
2020:
Based on credit sales at 2%
Based on accounts receivable at 5%

Q86. What amount should Harley charge to doubtful accounts expense under each method?
Percentage of Percentage of
Credit sales Accounts receivable
a. P90,000 P80,000
b. P90,000 P40,000
c. P70,000 P80,000
d. P70,000 P40,000

Q87. During the year, Carmilla Company made an entry to write off P4,000 uncollectible
account. Before this entry was made, the balance in accounts receivable was P50,000 and the
balance in allowance account was P4,500. The net realizable valueof accounts receivable
after the write off entry was
a. P50,000
b. PP49,500
c. P41,500
d. P45,500

Q88. Before year-end adjusting entries, Guineverre Company’s account balances at

December 31, 2020, for accounts receivable and the related allowance for uncollectible
accounts were P600,000 and P45,000, respectively. An aging accounts receivable indicated
that P62,500 of the December 31 receivables are expected to be uncollectible. The net
realizable value of accounts receivable after adjustment is
a. P582,500
b. P537,500

40
c. P492,500
d. P555,000

On July 17, MERC Company received a P12,000, 90-day, 10% note on account from VHRV
Company.
Required: Determine:
Q89. Due date for the note
Q90. Interest earned during the term of the note
Q91. Maturity value of the note
Prepare journal entries whether:
Q92. The note is honored on the maturity date
Q93. The note is dishonored on the maturity date

Q93-99. Hidalgo Company was a party to the following transactions.

2020:
a) 9/12 Received a $30,000, 12%, 120-day note on account.
b) 10/9 Received a $15,000, 10%, 60-day note on account.
c) 11/15 Received an $18,000, 15%, 30-day note on account.
d) 12/8 Received the amount due on the note of October 9.
e) 12/15 The note of November 15 was dishonored.
f) 12/31 Accrued interest on the note of September 12.

Required: Journalize the transactions

Monster Company purchased from Growl Company a P2,000,000, 8% five-year note that
required five equal annual year-end payments of P500,900. The note was discounted to yield
a 9% rate to Monster Company.

At the date of purchase, Monster Company recorded the note at the present value of
P1,948,500.

Q100. What is the total revenue earned by Monster Company over the life of this note?
a. P504,500
b. P556,000
c. P800,000
d. P900,000

Solution: Theories

41
1. A 21. A 41. C
2. B 22. C 42. B
3. A 23. A 43. D
4. A 24. C 44. D
5. C 25. D 45. B
6. C 26. D 46. C
7. C 27. D 47. B
8. B 28. D 48. B
9. B 29. D 49. C
10. A 30. D 50. A
11. D 31. D 51. C
12. D 32. C 52. D
13. D 33. A 53. A
14. D 34. C 54. A
15. A 35. A 55. B
16. C 36. A 56. D
17. C 37. B 57. C
18. C 38. C 58. D
19. D 39. C 59. A
20. B 40. A 60. B

61. B 81. D
62. A 82. B
63. B 83. A
64. C 84. C
65. C 85. B
66. B 86. A
67. C 87. B
68. D 88. B
69. B 89. B
70. B 90. D
71. B 1. F
72. C 2. F
73. A 3. T
74. D 4. T
75. A 5. T
76. B 6. F
77. D 7. F
78. C 8. T
79. C 9. F
80. C 10. F

Solution: Problems

42
SOLUTION #1

Q1. Invoice amount (P20,000x70%x85%) P11,900

Multiply by ____2%
Total available discount P 238
Multiply by 75%

Discount expected to be taken P 190.40

Q2. Invoice amount P 11,900

Discount to be taken _ (190.40)

Transaction Price P 11,709.6

Q3. a) Accounts Receivable 11,900

Revenue 11,900

Sales discount 190.40

Allowance for sales discount 190.40

b) Cash (P 11,900 x 80% x98%) 9,329.60

Allowance for sales discount 190.40
Accounts Receivable (P11,900x 80%) 9,520

c.) Cash (P 11,900 x 20% ) 2,380

Accounts Receivable 2,380

SOLUTION #2

Q4. Total available discount P 238.00

Multiplied by revised estimate _ 40%

Revised Discount expected to be taken P 95.20

Q5. Invoice amount P 11,900

Discount expected to be taken (_ 95.20)

Transaction Price (revised) P 11,804.8

Q6. Transaction Price (revised) P 11,804.8

Less initial estimate 11,709.6

Adjustment increase in transaction price P 95.20

43
Q7. Adjusting Entry
Accounts receivable P95.20
Revenue P95.20

SOLUTION #3
Q8. (Formula = Percentage x Net Credit Sales)

Total sales P700,000

Cash sales (150,000)
Gross credit sales P 550,000
Sales Returns and discounts ( 5,000)
Net Credit Sales P 545,000
Percentage x _____ 3%

Bad debt expense P 16,350

Q9. Allowance for Doubtful Accounts, Jan 1. P12,000

Recoveries 2,500
Bad debt expense 16,350
Write offs ( 5,000)

Allowance for doubtful accounts, December 31. P 25,850

.
Q10. Gross Accounts receivable, Dec 31, P200,000
Allowance for doubtful accounts ( 25,850)

Net realizable value of accounts receivable P174,150

SOLUTION #4

Q11. Answer C

Origination fee received P432,200

Direct origination costs (150,000)

Unearned interest income P282,200

Loan receivable P7,000,000

Unearned interest income ( 282,200)

Carrying amount P 6,717,800

44
Q12. Answer D

Interest income for 2020 (P6,717,800x12%) P 806,136

Interest received for 2020 (P 7,000,000 x 8%) 560,000

Amortization of unearned interest P 246,136

SOLUTION #5

Q13. Answer A

Accounts receivable, January 1 P 1,300,000

Add: Credit Sales 5,400,000
Total P 6,700,000
Less: Collection from customers 4,750,000
Accounts written off 125,000 4,875,000
Accounts receivable, December 31 P 1,825,000

The recovery of the accounts written off does not affect the balance of accounts receivable
because the effect is offsetting.

SOLUTION #6

Q14. Answer D

Accounts receivable- January1 P 650,000

Credit sales 2,700,000
Total 3,350,000
Less: Collections from customers 2,150,000
Accounts written off 40,000
Sales returns 75,000 2,265,000
Accounts receivable - December 31 P 1,085,000

The net realizable value of accounts receivable is computed as follows:

Accounts receivable P 1,085,000

Less: Allowance for doubtful accounts 110,000
Allowance for sales returns 50,000 160,000
Net realizable value P 925,000

SOLUTION #7

Q15. Answer A

45
Sales on account P 3,600,000
Notes received to settle accounts (400,000)
Accounts receivable written off (25,000)
Merchandise returned by customer (15,000)
Collections received to settle accounts 2,450,000)
Discounts taken by customers (40,000)
Accounts receivable 670,000
Allowance for doubtful accounts (65,000)
Net realizable value P 605,000

Provisions for doubtful accounts P 90,000

Accounts written off (25,000)
Allowance for doubtful accounts P 65,000

SOLUTION #8

Q16. Answer A

Trade accounts receivable P 930,000

Allowance for uncollectible accounts (20,000)
Claim receivable 30,000

Total trade and other receivables P 940,000

The selling price of goods on consignment is excluded from accounts receivable because the
goods are still unsold.
The cost of the consigned goods of P200,000 (260,000/130%) should be included in the
inventory.

The security deposit is noncurrent receivable.

SOLUTION #9

Q17. Answer A

Net realizable value of accounts receivable P 5,000,000

Allowance for doubtful accounts (800,000-200,000) 600,000
Gross accounts receivable P 5,600,000

SOLUTION #10

Q18. Answer D

0-30 days (5,000,000 x 2%) P 100,000

46
31-60 days (2,000,000 x 10%) 200,000
Over 60 days (1,000,000 x 20%) 200,000
Required allowance- December 31 P 500,000
Add: Debit balance in allowance 20,000
Doubtful accounts expense P 520,000

SOLUTION #11

Q19. Answer C

Required allowance for doubtful accounts at year-end

(3% x 5,000,000) = P 150,000

If the percentage of accounts receivable method is used, the amount computed represents the
required ending allowance for doubtful accounts.

The doubtful accounts expense is determined as follows:

Allowance for doubtful accounts at year-end P 150,000
Add: Debit balance in allowance account before adjustment 40,000
Doubtful accounts expense P 190,000

SOLUTION #12

Q20. Answer B

Uncollectible accounts expense (2% x 9,000,000) 180,000

Under the percentage of sales method, the amount computed already represents the
uncollectible accounts expense.

Q21. Answer A

Allowance for uncollectible accounts, January 1 P 260,000

Uncollectible accounts expense 180,000
Accounts written off (325,000)
Allowance for uncollectible accounts- December 31 P 115,000

SOLUTION #13

Q22. Answer C

1-60 days (6,000,000 x 10%) P 600,000

61-180 days (2,000,000 x 20%) 400,000
181-360 days (1,500,000 x 30%) 450,000
More than one year (500,000- 100,000 x 50%) 200,000

47
Required allowance- December 31, 2016 P 1,650,000

Allowance for doubtful accounts-January 1, 2016 P 1,000,000

Recoveries 50,000
Doubtful accounts expense (SQUEEZE) 900,000
Total P 1,950,000
Accounts written off (200,000+100,000) (300,000)
Allowance for doubtful accounts- December 31, 2016 P 1,650,000

The doubtful accounts expense is “squeezed” by working back from the allowance for
doubtful accounts on December 31, 2016.

Q23. Answer D
Correct doubtful accounts expense P 900,000
Recorded doubtful accounts expense (3% x 20,000,000) 600,000
Increase in doubtful accounts expense P 300,000

Adjusting Entry
Doubtful accounts expense 300,000
Allowance for doubtful accounts 300,000
*Note that the allowance for doubtful accounts is credited.

Q24. Answer B

Accounts receivable- December 31, 2016

(10,000,000-100,000 to be written off) P 9,900,000
Allowance for doubtful accounts - December 31, 2016 (1,650,000)
Net realizable value P 8,250,000

SOLUTION #14

Q25. Answer A

First payment on January 1, 2020 P100,000

Present value of remaining four payments (100,000 x 3.04) 304,000

Correct sales revenue P404,000

Q26. Answer B

Present value of remaining four payments (100,000 x 3.04) P 304, 000

Q27. Answer C

48
Interest income for 2020 (12%x P304,00) P36,480

Q28. Answer D

Note Receivable (P100,000 x 4) P400,000

Present value of remaining four payments (304,000)
Unearned interest income (Jan. 1,2020) P 96,000

Note Receivable, Dec. 31,2020 P400,000

Less: unearned interest income Dec. 31,2020 (P96,000-P36,480) 59,520
Carrying amount P340,480

SOLUTION #15

Q29. Answer B

Face amount of note P 2,000,000

Less Present value of note (P400,000 x 3.80 ) 1,520,000
Unearned interest income P 480,000

Q30. Answer C

Sales price (present value) P1,520,000

Less: carrying amount 1,300,000
Gain on Sale P 220,000

Q31. Answer B

Interest income for 2021 ( 10% x P1,520,000) P 152,000

Journal entry:
Cash P 400,000
Unearned interest income P 152,000
Notes Receivable P 400,000
Interest income P 152,000

Q32. Answer A

Notes receivable, Dec. 31,2021 (2,000,000 - 400,000) P 1,600,000

Unearned interest income for Dec 31,2021 (P480,000 - P 152,000) 328,000
Carrying amount, NR, Dec 31,2021 P 1,272,000

Solution #16

49
Q33. Answer: A
Trade accounts receivable P230,000
Allowance for uncollectible accounts ( 6,000)
Claims against shipper for goods lost in transit (Feb. 2020) 8,000
Total current net receivables P232,000

Q34. Answer C (P12,800,000 × .01) – P6,000 = P122,000.

Q35. Answer D (P6,500,000 × .08) – P12,000 = P508,000.

Q36. Answer C P3,000,000 × .08 = P240,000.

Q37. Answer B P540,000 + (P90,000 – P40,000) = P590,000.

Q38. Answer B P600,000 – P62,500 = P537,500.

Q39. Answer D (P50,000 – P4,000) – (P4,500 – P4,000) = P45,500.

Q40. Answer C P8,000 – P9,000 + X = $5,500; X = P6,500.

Q41. Answer B (P425,000 – P14,000) × .02 = P8,220.

Q42. Answer A (P43,000 × .10) – P760 = P3,540.

Q43. Answer B P60,000 – P3,600 = P56,400.

Q44. Answer B (P240,000 × .05) – [P10,000 – (P7,200 – P2,100)] = P7,100.

Q45. Answer D P288,000 × .05 = P14,400.

Q46. Answer B P80,000 – P4,800 = P75,200.

Q47. Answer B P480,000 × .05 – [P20,000 – (P14,400 – P4,200)] = P14,200.

Q48. Answer D P360,000 × .05 = P18,000.

Q49. Answer A P75,000 – P2,000 + P3,000 = P76,000

Q50. Answer D. Allowance for doubtful accounts balance

P34,000 + P5,000 – P23,000 = P16,000 (before bad debts expense)
P325,000 – P300,000 – P16,000 = P9,000

Q51. Answer D. P69,000 – P56,000 + P46,000 = P59,000

Q52. Answer B. P90,000 + P13,000 – P 95,000 = P8,000

50
Q53. Answer D. P750,000 × .02 = P15,000

Q54. Answer C. P400,000 × .75 = P300,000 present value

P300,000 × P.10 = P30,000 (2006 interest)
(P300,000 – P30,000) × .10 = P33,000 (2007 interest)

Q55. Answer B. P540,000 + (P90,000 – P40,000 = P590,000

Q56. Answer B. P600,000 – P62,500 = P537,500

Q57. Answer D. (P50,000 – P4,000) – (P4,500- P4,000) = P45,500

Q58. Answer C. P8,000 – P9,000 + X = P5,500; X = P6,500

Q59. Answer B. (425,000 – P14,000) × .02 = P8,220

Q60. Answer A. (P43,000 × .10) – P760 = P3,540

Q61. Answer B. P60,000 – P3,600 = P56,400

Q62. Answer B. (P24,000 × .05) – [P10,000 – (P7,200 – P2,100)] = P7,100

Q63. Answer D. P288,000 × .05 = P14,400

Q64. Answer B. P80,000 – P4,800 = P75,200

Q65. Answer B

Note receivable, April 30, 2018 P1,800,000

Payment on May 1, 2019 ( 450,000)

Note receivable, May 1, 2019 P1,350,000

Q66. Answer A

Accrued interest receivable – April 30, 2020

(P1,350,000 x 8%) P108,000

Q67. Answer D

Note receivable P 5,500,000

Present value (P5,500,000 x .73) 4,015,000

Unearned interest income P 1,485,000

51
The unearned interest income is amortized s interest income over 3 years using the effective
interest method.
Thus, the interest income for 2018 is 11% times P4,015,000 or P 441,650.

Q68. Answer C

Present value of note (correct sale price) P 4,015,000

Carrying amount of equipment 3,600,000

Gain on sale of equipment P 415,000

Q69. Answer C
Accounts receivable P 1,250,000
Collectibles 1,300,000
P 2,550,000

Q70. Answer B
Account receivables P 1,200,000
Collectibles 500,000
Less: 150,000
50,000
250,000
P 50,000
P 1,250,000

Q71. Answer A
Trade accounts receivable P 2,000,000
Security deposit on lease of warehouse 200,000
P 2,200,000

Q72. Answer A
Accounts receivable P1,500,000
Est. To be uncollectible (100,000)
P 1,400,000

Q73. Answer C
(P900,000-200,000=700,000 + 6,000,000 = P6,700,000)

Q74. Answer B
(P1,050,000 – P450,000 = P600,000)

Q75. Answer D
(P330,000 – P230,000 = P100,000)

52
Q76. Answer A
(P230,000 – P200,000 = P30,000)

Q77. Answer A
(P300,000 + P40,000 + P50,000 = P490,000)

Q78. Answer B
(P160,000 – P60,000 – P20,000 = P80,000)

Q79. Answer D
(P5,000,000 × 2% × 50% = P50,000)

Q80. Answer A
(P120,000 + P200,000 + P80,000 + P90,000 + 70,000 = P560,000)

Q81. Answer B
( P10,000 + 90,000 = P100,000)

Q82. Answer A
( P5,000 + P135,000 = P140,000)

Q83. Answer A
(P250,000 – P30,000 = P220,000)

Q84. Answer D
( P425,000 – P250,000 = P175,000)

Q85. Answer A
Total P1,910,000
Less: 25,000
250,000
100,000
550,000
100,000
20,000
P1,045,000
P 865,000
Credit balances arising from
sales return 150,000
P 1,015,000

Q86. Answer D
Percentage of credit sales Percentage of accounts receivable
P3,500,00 × .02 = P70,000 P1,200,000 × .05= P60,000 – P20,000 = P40,0000

53
Q87. Answer D
(P50,000 – P4,500 = P45,500)

Q88. Answer B
(P600,000 – P62,500 = P537,500)

Q100. Answer B

Total payments (P500,900 x 5) P 2,504,500

Present value of the note (1,948,500)
Total interest revenue P 556,000

54