QUIZ 1

Bank reconciliation are normally prepared on a monthly basis to identify adjustments needed in the
depositor’s records and to identify bank errors. Adjustments on the part of the depositor should be
recorded for

a. All items except bank errors, outstanding checks and deposits in transit.

b. Bank errors, outstanding checks and deposits in transit.

c. Outstanding checks and deposits in transit.

d. Book errors, bank errors, deposits in transit and outstanding checks.

Ferragamo Company established a petty cash fund of P5,000 on July 1, 2020. At the end of the month,
the count of cash on hand indicated that P675.40 remained in the fund. A review of the petty cash
vouchers disclosed the following expenses had been incurred during the month:

Office supplies – P341.61; Postage – P780.00; Representative – P1,000.00; Transportation – P 1,321.40;

and Miscellaneous – P837.60

The above information indicates that there is a:

a. Cash shortage of P44.00.

b. Cash overage of P1,394.80.

c. Cash overage of P44.00.

d. Cash shortage of P1,394.80.

The information that follows is available from the general ledger and the bank statement of Mickey
Company

· Cash in bank, October 31, P939,000

· Deposit in transit, October 31, 35,000; Outstanding checks, October 31, 68,000

· Credit memo, October 60,000; Debit memo, October 20,000

· Included in the October bank receipts was a deposit of Mickey Company for P25,000, erroneously
recorded by the bank to Mc Key Company’s account

· Included in the October bank disbursements was a check issued by Meekly Company for P10,000,
erroneously recorded by the bank in Mickey Company’s account

· Included in the book receipts was a deposit for P45,000 which was recorded as P54,000. No
correction was made yet by Mickey Company
· Included in the book disbursements was a check issued by Mickey Company for P42,000 was
recorded as P24,000

The correct cash balance as of October 31, 2012 is:

a. 952,000

b. 945,000

c. 970,000

d. 927,000

The Gabbana Company’s ledger showed a balance in its cash account at December 31, 2012 of
P682,250, which was determined to consist of

Petty cash fund P3,600

Cash in Metrobank (reconciliation shows that a check of

P6,000 is outstanding at December 31, 2012) 336,750

Notes receivable in the possession of a collecting agency 25,000

Undeposited receipts, including a customer’s post-dated check

For P10,500 and traveler’s check for P10,000 178,000

Bond sinking fund cash 127,500

IOUs signed by employees 4,950

Paid vouchers not yet recorded 6,450

At what amount should Cash on hand and in bank be reported on Gabbana Company’s December 31,
2012 statement of financial position?

Answer: 507,850

The petty cash fund account under the imprest fund system is debited:

a. When the fund is created and when the size of the fund is increased.

b. Only when the fund is created.

c. When the fund is created and every time it is replenished.

d. When the fund is created and when the fund is decreased.

The controller for Goofy Company is attempting to determine the amount of cash to be reported on the
December 31, 2020 balance sheet. The following items are included in the Cash in Bank items of Goofy
Company:

BDO special checking used for payroll payments P500,000

BPI special account used as a bond sinking fund 400,000

MBTC checking account (per ledger), checks of P80,000 are

Outstanding as of December 31, 2020 300,000

DBP, checking account (per bank statement) of P50,000 are

Outstanding as of December 31, 2020 600,000

EWB, includes a P100,000 compensating balance maintained in relation to

A short loan 1,000,000

PNB, includes a P200,000 compensating balance maintained in relation

To a loan arrangement 1,000,000

Checking account in LBP

CA – 000-111111 P600,000

CA – 000 -111112 (250,000) 350,000

EBC, (bank under liquidation) realizable value was

P0.75 of every P1.00 deposit 200,000

ILM, current account (50,000)

1-year treasury note , maturity date January 31, 2021 600,000

1-year treasury note, maturity date on January 31, 2021

(acquired November 28, 2020) 800,000

90-day Central Bank treasury bills 450,000

ABC, US dollar denominated deposit (opened in October 17);

Exchange rate on October 17 was P40; average (October 17 to

December 31) was P50; December 31 was P45 $20,000

The amount to be reported as Cash and Cash Equivalents in Goofy Company’s December 31, 2020
balance sheet is:

a. 5,450,000

b. 5,470,000
c. 5,850,000

d. 5,550,000

The cash account of Hanabi Corp. on December 31, 2020 has a balance of P127,600 and it consists of the
following:

Bills and coins on hand P52,780

Petty cash including petty cash vouchers of P650 1,000

Balance in savings account with a bank closed by the BSP 36,000

Customer’s check dated January 15, 2021 8,000

Credit memo from suppliers for purchases returns 6,500

Postage stamps 120

Money order 800

IOU of an employee 400

Checking account balance in Bank of P.I. 22,000

The correct cash balance on December 31, 2020 of Hanabi Corp. is:

a. P76,330

b. P75,930

c. P75,130

d. P76,580

The auditor for NETFLIX INC. examined the petty cash fund immediately after the close of business
December 31, 2020, et the end of the company’s business year. The petty cash custodian presented the
following during the count:

Currency P1,650

Petty cash vouchers:

Postage 420

Office supplies expense 900

Transportation expense 340

Computer repairs 800

Advances to office staff 1,500

 A check drawn by Netflix Inc., payable to the PCF custodian 7,200

Postage stamps 300

An employee’s check, returned by bank, marked NSF 1,000

An envelope containing currency of P1,890 for

A gift for a retiring employee 1,890

The general ledger shows an imprest petty cash fund balance of P16,000.

This problem contains two (2) questions:

What is the adjusted balance of the Petty cash fund at December 31, 2020?

Answer: 8,850

How much is the petty cash shortage or overage?

Answer: -2,190 (Shortage)

Dior Company reported a balance of P43,000 in its cash account at the end of the month. There were
P20,000 deposits in transit and P15,000 of outstanding checks. The bank statement showed a balance of
P50,000, service charges of P6,000 and the proceeds of note collected by the bank for the company. The
note had a face value of P15,000.

How much is the interest on the note collected by the bank?

a. P12,000

b. P3,000

c. P9,000

d. P6,000

In preparing a bank reconciliation, interest paid by the bank on the depositor’s account is:

a. added to the book balance.

b. added to the bank balance.

c. subtracted from the bank balance.

d. subtracted from the book balance.

In preparing its August 31, 2012 bank reconciliation, Christian Company has available the following
information:
Balance per bank statement, August 31, 2012 – P180, 500; Deposit in transit – P32, 500; Return of
customer’s check for insufficient funds – P6,000; Outstanding checks – P27,500; Bank service charges –
P1,000.

What is the unadjusted cash balance per books at August 31, 2012?

a. P185,500

b. P180,000

c. P192,500

d. P173,500

Esprit Company keeps all its cash in checking account, An examination of the company’s accounting
records and bank statement for the month ended December 31, 2012 revealed the following
information: Cash balance per bank statement – P846, 900; Cash balance per ledger – P852, 400.

A deposit of P95, 000 placed in bank’s night depository on December 29, 2012 does not appear on the
bank statement. The bank statement shows that on December 26, 2012, the bank collected a note for
Esprit and credited the proceeds of P93, 500 to the company’s account. The proceeds included P3, 500
interest, all of which Esprit earned during the current accounting period. Esprit has not yet recorded the
collection.

Checks outstanding on December 31, 201 were: No. 032752 – P15, 000; No. 032758 – P4, 800; No.
032767 – P7, 200.

Esprit discovered that check no. 032759 written in December 2012 for P18, 300 in payment of an
account had been recorded in the company’s records as P13, 800. Included with the December 31, 2012
bank statement was an NSF check for P25, 000 that Esprit had received from Pitt Company on account
on December 20, 2012. Esprit has not yet recorded the returned check. The bank statement shows a P1,
500 service charge for December.

a. credit to cash of P31, 000.

b. debit to cash of P93, 500.

c. net credit to cash of P62, 500.

d. net debit to cash of P62, 500.

What happens when a petty cash is in use?

a. Petty cash is debited when the fund is replenished.

b. Expenses paid with petty cash are recorded when the fund is replenished.

c. Petty cash is credited when the fund is replenished.

d. Most small amounts are paid from cash receipts before they are deposited.

As of December 31, 2020, the petty cash fund of KAPITPA Company with general ledger balance of
P20,000 comprises the following: Coins and currencies – P3,400; Petty cash voucher (Gasoline for
delivery equipment) – P4,000; Petty cash voucher (Medical supplies for employees) – P2,720; IOUs
(Advances to employees) – P2,960; A sheet of paper with names of several employees together with
contribution to bereaved employees attached is a currency of P3,200; Check – Check drawn to the order
of the petty cash custodian – P4,000; The petty cash custodian admits to have taken money from the
fund and forgot to replace it.

How much is the net adjustment to Petty cash fund on December 31, 2020?

a. 12,600

b. 9,680

c. 12,880

d. 13,680

Unreleased checks (check drawn before the end of reporting period but held for later delivery to
creditors)

a. Shall be treated as outstanding checks if they are ultimately encashed.

b. Shall be treated as outstanding checks if the date is shortly after the end of reporting period.

c. Shall be treated as outstanding checks.

d. Shall be restored to the cash balance.

A compensating balance:

a. Which is not legally restricted as to withdrawal is classified separately as current asset.

b. Must be included in cash and cash equivalent.

c. Which is legally restricted and related to a short-term loan is classified separately as current asset.

d. Which is legally restricted and related to a long-term loan is classified as current asset.

Debit memos refer to items not representing checks paid by the bank which are charged or debited by
the bank to the account of the depositor but not yet recorded by the depositor as cash disbursements.
The following are examples of debit memos, except

a. NSF or DAUD checks.

b. note collected by bank in favor of the depositor.

c. bank service charges.

d. automatic charge for interest on loan of the depositor.

Cash equivalents are

a. Short-term and highly liquid marketable equity securities.

b. Short-term and highly liquid investments that are readily convertible into cash.

c. Short-term and highly liquid investments that are readily convertible into cash and acquired three
months before maturity.

d. Short-term and highly liquid investments that are readily convertible into cash with remaining
maturity of three-months.

DEFYING GRAVITY (DG) Company’s Cash in Bank as of December 31, 2013 included the following:

Cash in Bank - BDO Checking Account P1,500,000

Cash in Bank - BPI Checking Account 1,200,000

Cash in Bank - MBTC Checking Account (per bank statement 1,450,000

Total P4,150,000

Additional information in relation to the above-mentioned components is as follows:

· The following items were noted in relation to the BDO checking account:

§ Check No.123543 written and dated on December 28, 2013 in the amount of P45,000 remains at
hand as of December 31, 2013

§ Check No. 123546 written on December 29, 2013 in the amount of P30,000 dated January 2, 2014
was picked up at December 31, 2013

§ Check No. 123550 written and dated on December 30, 2013 in the amount of P25,000 was picked
up at December 31, 2013 but has remained outstanding until January 4, 2014

The following information is in relation to DG Company’s BPI checking accounts:

BPI checking account #10001 P1,450,000

BPI checking account #10002 (250,000)

Total P1,200,000

§ The overdraft in BPI checking account #10002 was due to a check for P300,000 dated January 2,
2014 and was claimed by the payee on December 29, 2013.
§ A compensating balance was being maintained in BPI checking account #10001 for P100,000 in
relation to a long-term loan

The following items were identified in relation to the MBTC checking account, deposit in transit at
December 31, 2013, P75,000; outstanding checks at December 31, 2013, P60,000; service charge for
December, P2,500; interest income for December, P1,000

The correct amount to be reported as Cash in Bank is?

Answer: 4,440,000

Which of the following statements is not true?

a. Entries are made to the petty cash account to increase or decrease the size of the fund or to adjust
the balance if not replenished at year-end.

b. The imprest petty cash system in effect adheres to the rule of disbursements by check.

c. The petty cash account is debited when the fund is replenished.

d. Adjustment of the petty cash account is made at the end of the period to avoid understatement of
expenses and overstatement of cash.

What is the major purpose of an imprest petty cash fund?

a. To determine the honesty of the petty cashier.

b. To ease the payment of cash to vendors.

c. To effectively control cash disbursements.

d. To effectively plan cash inflows and outflows.

Bank statements provide information about all of the following, except

a. checks cleared during the period.

b. no sufficient funds checks.

c. bank charges for the period.

d. errors made by the company.

A cash short and over account is:

a. Debited when the petty cash fund proves out short.

b. Debited when the petty cash fund proves out over.

c. A contra account to cash.

d. Not generally accepted.

The cash account of Kate Company showed a ledger balance of P396,980 on June 30, 2012. The bank
statement as of that date showed a balance of P415,000. Upon comparing the statement with the cash
records, the following facts were determined:

· There were bank service charges for June of P1,500.

· A bank memo stated that ABC Company’s note for P90,000 and interest of P2,600 had been
collected on June 29, and the bank has made a charge of P550 on the collection. (No entry had been
made in Kate Company’s books when ABC’s note was sent to the bank for collection.)

· Receipts of June 30 for P289,000 were not deposited until June 2

· Checks outstanding on June 30 totaled P186,610.

· The bank had charged the Kate Company’s account for customer’s uncollectible check amounting to
P45,320 on June 29.

A customer’s check for P90,000 had been entered as P60,000 in the cash books; checks no. 798 for
P49,100 was recorded as P41,900 and check no. 799 in the amount of P5,820 had been entered as
P58,200. Both checks had been issued to pay for a purchase of an equipment.

What is the amount of cash to be shown in the June 30, 2012 statement of financial position?

Answer: 517,390

If the cash balance shown in the company’s cash records is less than the correct cash balance and
neither the company nor the bank has made any errors, there must be

a. outstanding checks.

b. bank charges not yet recorded by the depositor.

c. a no-sufficient fund check returned by the bank.

d. an interest credited by the bank in the depositor’s account.

The bank statement of ELLEN Corporation for February 2014 showed an ending balance of P169,700.
Deposit in transit on February 28 was P18,200. Outstanding checks as of February 28 were P59,000,
including a P5,000 check which the bank had certified on February 25. During the month of February,
the bank charged back NSF checks in the amount of P3,000 of which P1,000 had been redeposited in
February. On February 20, the bank charged the account of ELLEN Company for P2,000 which should
have been charged against the account of another company; the error was not detected by the bank.
During February, the proceeds from the note collected by the bank for ELLEN Company was P7,500 and
bank charge for this services was P50.

The adjusted cash balance on February 28, 2014 is?

Answer: 135,900

Which of the following is usually considered cash?

a. Checking account.

b. Money market saving certificate.

c. Certificate of deposit.

d. Postdated check.

The cash account of Spock Company as of December 31, 2020 was provided to you as follows:

Current account in PNB P120,000

Undeposited collections 8,000

Customer’s check returned by bank (marked as NSF) 12,000

Check drawn by the Finance Director of Spock Company dated

January 13, 2021 15,000

Check from Enterprise Company dated December 28, 2020

for goods returned by Spock Company 20,000

Check drawn by Spock Company against its BDO account.

The check was returned by the car dealer since the acquisition of the delivery equipment did not
materialize.

This check was an outstanding check in the BDO

account reconciliation 45,000

Petty cash fund, P6,000 in currency, P3,500 in employee

IOU’s and P2,500 supported by approved petty cash

vouchers for expenses all dated prior to December 31, 2020 12,000

232,000

Less: Overdraft in BDO account (Spock Company does not

 have any other account in BDO) (30,000)

P202,000

The amount to be reported as cash and cash equivalents in Spock Company’s December 31, 2012
statement of financial position is:

a. 184,000

b. 169,000

c. 154,000

d. 199,000

Fino Company banks with ABC Bank and prepares reconciliation of the bank and books balances on a
regular monthly basis. The December 31, 2012 reconciliation shows a balance per bank of P581,050,
balance per books of P627,000, outstanding checks of P84,300, deposits in transit of P120,000, interest
earned on the bank balance of P1,250, and service charges of P400. Included in the bank statement was
a cancelled check which the company had failed to record. The check was in payment of accounts
payable.

What is the amount of the unrecorded check issued by the company in payment of accounts payable?

a. P11,900

b. P11,100

c. P11,000

d. P8,600

If a petty cash fund is established in the amount of P2,500, and contains P2,000 in cash and P450 in
receipts for disbursements when it is replenished, the journal entry to record replenishment should
include credit to the following accounts:

a. Cash, P500.

b. Petty Cash, P500.

c. Cash, P450; Cash Over and Short, P50.

d. Petty Cash, P450.

The balance sheet of Alaska Company as of December 31, 2013 shows Cash of P17,500. It was found to
include the following items:

Postal money orders from customers P2,400

Notes receivable in the possession of a collection agency 3,200

Receipts for expense advances for the account of credit suppliers 600

Customers’ postdated checks, returned by the bank marked “NSF” 1,800

Traveler’s check 500

Currencies and coins on hand 600

Checks in payment of accounts not yet delivered to payee 6,000

PCF (P160 in currency and P840 in expense receipts) 1,000

What is the correct cash balance?

a. 12,860

b. 11,060

c. 9,660

d. 14,260

The Petty Cash Fund of CHARITY Company has an imprest balance of P20,000. The following items are
found in its drawer on December 31, 2021:

Currencies and coins 4,700

Vouchers for expenses during the year:

Office supplies 1,500

Postage stamps 500

Transportation 100 2,100

IOU notes of several employees all dated December 2021 2,500

Unused postage stamps 100

Replenishment check drawn by the Co., payable

to the order of petty cash custodian 1,500

Check received from customers representing sales for the month

of December 1,700

Check received from Polite, an officer, dated December 30,2021 2,000

Envelope containing contributions from employees

for field trip in Star City 5,000

How much is the correct amount of petty cash fund on Dec. 31, 2021?

a. 6,200

b. 4,700

c. 8,200

d. 20,000

Following are reconciling items in an enterprise’s bank reconciliation statement.

1. Deposits in transit

II. Company check for P32,500 recorded in the books for P23,500

Ill. Note collected by bank in behalf of the company

IV. Deposit of another company erroneously credited by bank to the company’s account

V. No sufficient fund check charged back by bank

VI. Company deposit for P32,500 recorded in the books for P23,500

Which of these adjustments would be shown as addition to the cash balance per books in order to arrive
at the correct cash balance?

a. II and III

b. II, III, and VI

c. III and VI

d. II, V and VI

A bank reconciliation is:

a. A statement sent by the bank to depositor on a monthly basis.

b. A merger of two banks that previously were competitors.

c. A formal financial statement that lists all of the bank account balances of an entity.

d. A schedule that accounts for the difference between an entity’s cash balance as shown in the bank
statement and the cash balance shown in the general ledger.

Which is FALSE concerning measurement of cash and cash equivalents?

a. Cash is measured at face value.

b. Cash equivalents should be measured at maturity value, meaning face value plus interest.

c. Cash in foreign currency is measured at the current exchange rate.

d. If a bank or financial institution holding the funds of the company is in bankruptcy or financial
difficulty, cash should be written down to estimated realizable value.

Which item should be excluded from cash and cash equivalents in the current year-end statement of
financial position?

a. The minimum cash balance in the entity’s current account which is maintained to avoid service
charges.

b. Time deposit which matures in one year.

c. A customer’s check dominated in a foreign in a foreign currency.

d. A check issued by the entity on December 27 of the current year but dated January 15 of next year.

Petty cash fund is:

a. Money kept on hand for making minor disbursements of coin and currency rather than by writing
checks.

b. Set aside for the payment of payroll.

c. Separately classified as current asset.

d. Restricted cash.

Circo Company prepared the following bank reconciliation on March 31:

Book balance P1,405,000

Add: March 31, deposit 750,000

Collection of note 2,500,000

Interest on note 150,000 3,400,000

Total 4,805,000

Less: Circa Company’s deposit to our account 1,100,000

Bank service charge 45,000 1,145,000

Adjusted book balance 3,660,000

 Bank balance 5,630,000

Add: Error on Check No. 175 45,000

Total 5,675,000

Less: Preauthorized payments for water bills 205,000

NSF check 220,000

Outstanding check 1,650,000 2,075,000

Adjusted bank balance 3,600,000

Check No. 175 was made for the proper amount of P 249,000 in payment of account. However, it was
entered in the cash payments journal as P 294,000. Circo authorized the bank to automatically pay its
water bills as submitted directly to the bank.

What is the adjusted cash in bank on March 31?

a. 3,600,000

b. 3,660,000

c. 3,630,000

d. 2,880,000

Which of the following items must be added to the cash balance per ledger in preparing a bank
reconciliation which ends with adjusted cash balance?

a. Note receivable collected by bank in favor of the depositor and credited to the account of the
depositor.

b. NSF customer check.

c. Service charge.

d. Erroneous bank debit.

QUIZ 2

JUSTIN Company provided some information on their financial records on December 31, 2021:

Accounts receivable, Janaury 1 P1,920,000

Collection of account receivable 6,240,000

Bad debts 200,000

Inventory, January 1 2,880,000

Inventory, December 31 2,640,000

Accounts payable, January 1 1,000,000

Accounts payable, December 31 1,500,000

Cash sales 1,200,000

Purchases 4,800,000

Gross profit on sales 2,160,000

What is the ending balance of accounts receivable on December 31, 2021?

Answer: 1,680,000

On December 31, 2021, the accounts receivable general ledger account of SKYWAY Corporation had a
balance of P181,000. An analysis of the accounts receivable account showed the following:

Accounts known to be worthless P2,500

Advance payments to creditors on purchase orders 10,000

Advances to affiliated companies 25,000

Customers’ accounts reporting credit balance arising from sales return (15,000)

Interest receivable on bonds 10,000

Other trade accounts receivable, unassigned 50,000

Subscriptions receivable for ordinary share capital due in 30 days 55,000

Trade accounts receivable-assigned 15,000

Trade installment receivable due 1-18 months, including unearned finance charges of P2,000 22,000

Trade receivables from officers, due currently 1,500

Trade accounts on which postdated checks are held. No entries were made on receipts of checks
5,000

Total P181,000

The correct balance of trade accounts receivable of SKYWAY Corporation on December 31, 2021 is:

a. P91,500

b. P86,500

c. P103,500

d. P206,000

ASTRA Company uses the net price method of accounting for cash discounts. In one of its transactions
on December 15, 2021, ASTRA sold merchandise with a list price of P500,000 to SWAN Company who
was given a trade discount 20% and 15%. Credit terms were 2/10, n/30. The goods were shipped FOB
destination, freight collect. Total freight charges paid by the client amounted to P75,000. On December
20, 2021, the client returned damaged goods originally billed at P60,000. What is the net realizable
value of this receivable on December 31, 2021?

a. P274,400

b. P280,000

c. P272,500

d. P333,200

On January 1, 2021, JOANNE Company sells machinery with a carrying amount of P800,000, receiving a
P1,000,000 non-interest bearing due on January 1, 2024. There is no established market value for the
equipment. The interest rate on similar obligations is estimated at 12%. Round off present value factor
to three decimal places. JOANNE Company should report gain (loss) on the sale and interest income for
2021 at

a. (P88,000); P120,000
b. P200,000; P288,000

c. (P88,000); P85,440

d. P200,000; P96,000

On March 31, 2021, CIARA Co. had a total account receivable of P1,056,000. Presenting below is the
analysis of the age, the peso amount of the receivable according to their age and percent of
uncollectible based on observable data leading to the recognition expense related to the receivable.

Age Amount Estimated Uncollectible

0-30 days P960,000 5%

31-60 days 64,000 10%

Over 60 days 32,000 P22,400

What amount should CIARA report as expense related to the account receivable in its fiscal year ending
March 31, 2021 statement of comprehensive income?

a. P76,800

b. P48,000

c. P64,000

d. P60,800

Under the Gross Price Method of recording cash discounts, sales discounts are recorded:

a. when the customer pays beyond the discount period

b. only when not taken within the discount period

c. when offered at the date of sale

d. when the account is collected within the discount period

On October 1, 2021, ABEL Corporation assigned on a non-notification basis accounts receivable of

P6,000,000 to a bank in consideration for a loan of 75% of the receivables less 2% service fee on the
accounts assigned. The loan was evidenced by 12% note payable issued by ABEL to the bank. On
December 31, 2021, ABEL collected assigned accounts of P3,500,000, allowing sales discounts of
P100,000 and remitted the entire collection to the bank in partial payment of the loan. The bank
applied first the collection to the interest and the balance to the principal. In its December 31, 2021,
financial statements, ABEL should disclose its “equity in the assigned accounts” in the amount of

a. P1,365,000
b. P3,265,000

c. P1,400,000

d. P1,265,000

Presented below are unadjusted balances of selected accounts of ALICIA Company as of Dec. 31, 2021:

Debit Credit

Cash 500,000

Accounts Receivable 1,300,000

Allowance for Uncollectible Accounts 8,000

Sales (net) 6,750,000

Additional information:

· Goods amounting to P50,000 were invoiced for the account of UBF Company recorded in January 2,
2022 with terms of net 60 days, FOB shipping point. The goods were shipped to UBF on December 30,
2021.

· The bank returned on December 29, 2021, a customer’s check for P5,000 marked “No Sufficient
Funds” but no entry was made.

What is the adjusted/correct balance of Accounts Receivable at December 31, 2021?

a. P1,355,000

b. P1,300,000

c. P1,305,000

d. P1,350,000

MERCY Factors provides financing to other companies by purchasing their accounts receivable on a
nonrecourse basis. MERCY charges a commission to its clients of 15% of all receivables factored. In
addition, MERCY withholds 10% of receivables factored as protection against sales returns or other
adjustments. MERCY credits the 10% withheld to “Client Retainer” and makes payment to clients at the
end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of
the month. MERCY recognizes its 15% commissions as revenue at the time the receivables are factored.
Also, experience has led MERCY to establish an Allowance for Bad Debts of 4% of all receivables
purchased. On January 4, 2021, MERCY purchased receivables from AQUASTAR Company totaling
P1,500,000. AQUASTAR had previously established an Allowance for Bad Debts for these receivables of
P35,000. By January 31, MERCY had collected P1,200,000 on these receivables.

What amount of loss on factoring should be recognized by AQUASTAR Company on the sale of their
receivable?
a. P 225,000

b. P 150,000

c. P 0

d. P 190,000

If the allowance method of accounting for uncollectible receivables is used, what general ledger account
is debited to write off a customer’s account as uncollectible?

a. Uncollectible Accounts Expense

b. Accounts Receivable

c. Interest Expense

d. Allowance for Doubtful Accounts

On January 1, 2021, AGNES Corporation received from a customer an 8-month, P6,000,000 note bearing
an annual interest rate of 10%. The principal and the interest are payable on September 1, 2021. To
obtain cash quickly, AGNES discounted the note with BDO on March 1, 2021. BDO charged a discount
rate of 12%. What is the loss on note receivable discounting to be recognized by AGNES?

a. P100,000

b. P400,000

c. P384,000

d. P84,000

AGG Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is
P390,000 and credit sales are P1,300,000. An aging of accounts receivable shows that approximately 5%
of the outstanding receivables will be uncollectible. What adjusting entry will AGG Company make if
Allowance for Doubtful Accounts has a credit balance of P2,500 before adjustment?

a. Bad Debt Expense 19,500

Allowance for Doubtful Accounts 19,500

b. Bad Debt Expense 17,000

Allowance for Doubtful Accounts 17,000

c. Bad Debt Expense 22,000

 Allowance for Doubtful Accounts 22,000

d. Bad Debt Expense 65,000

Allowance for Doubtful Accounts 65,000

On January 1, 2021, NONON Corporation sold equipment costing P380,000 with accumulated
depreciation of P160,000 on the date of sale. NONON received as consideration for the sale, a P400,000
non-interest-bearing note, due January 1, 2024. There was no established exchange price for the
equipment and the note had no ready market. The prevailing rate of interest for a note of this type at
January 1, 2021, was 10%. The present value of 1 at 10% for three periods is 0.75.

This problem contains three questions:

1. In NONON’s 2021 income statement, how much should be reported as interest income?

Answer: 30,000

2. What is the note’s carrying value at December 31, 2021?

Answer: 330,000

3. Assuming that the equipment was sold and the note described above was received on July 1, 2021,
all other data being the same, what is the interest income for the year ended December 31, 2021?

Answer: 15,000

The maturity value of a 12%, 60-day note for P50,000 is P56,000.

True

False

When an account receivable that has been written off is subsequently collected, the account receivable
must first be reinstated before recording the receipt of payment.

True

False

Other receivables include nontrade receivables such as loans to company officers.

True

False

Selling receivables
a. delays the receipt of cash

b. shifts some of the risk to the buyer

c. occurs when an account becomes uncollectible

d. results in bad debt expense

When referring to a note receivable or promissory note,

a. the note may be used to settle an accounts receivable

b. the note is not considered a formal credit instrument

c. the note cannot be factored to another party

d. the maker is the party to whom the money is due

Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in
cash.

True

False

The account credited when a note receivable is discounted without recourse on the date of discounting
is

a. Accounts receivable

b. Notes receivable

c. Allowance for discounted notes

d. Liability on discounted notes

When using the percent of sales method of estimating uncollectibles, the entry to record bad debt
expense includes a credit to Accounts Receivable.

True

False

At the end of a period (before adjustment), Allowance for Doubtful Accounts has a credit balance of
P2,500. The credit sales for the period total P5,000,000. If the company estimates uncollectible accounts
expense at 1% of credit sales, the amount of bad debt expense to be recorded in an adjusting entry is
P47,500.

True

False

The account Credit Card Service Charge is debited in the book of the credit card-issuing company to
represent the credit card fees normally ranging from 1% to 5% of net credit card sales.

True

False

The term “receivables” includes all

a. money claims against other entities

b. merchandise to be collected from individuals or companies

c. cash to be paid to creditors

d. cash to be paid to debtors

Indications that an account may be uncollectible include all of the following except the customer

a. is making small but regular payments

b. files for bankruptcy

c. cannot be located

d. closes its business

A company may sell its receivables, but it still assumes the risk of uncollectible accounts.

True

False

ANGELLA Co. sold to MIRABEL Co. a P200,000, 8%, 5-year note that required five equal annual year-end
payments. This note was discounted to yield a 9% rate to MIRABEL. The present value factors of an
ordinary annuity of P1 for five periods are as follows:

8% 3.992

9% 3.890
What should be the total interest revenue earned by MIRABEL on this note?

a. P55,610

b. P50,500

c. P80,000

d. P90,000

On December 31, 2021, PS Bank has a 5-year loan renewable with a face value of P5,000,000 dated
January 1, 2020 from MIA Corporation that is due on December 31, 2024. Interest on the loan is
payable at 10% every December 31. The borrower paid the interest that was due on December 31, 2020
but informed PS Bank that interest accrued in 2021 and interest for 2022, 2023 and 2024 (P500,000
each year) will be paid on December 31, 2024, the maturity date of the loan, because of financial
difficulty. The PV of 1 at 10% for three periods is .751. What is the loan impairment loss to be
recognized on December 31, 2021?

a. 1,745,000

b. 1,369,000

c. 243,000

d. 494,000

Which of the following receivables would not be classified as an “other receivable”?

a. advance to an employee

b. refundable income tax

c. interest receivable

d. notes receivable

ALLAN Company had the following information relating to its accounts receivable:

Accounts receivable at 12/31/2020 P1,300,000

Credit sales for 2021 5,400,000

Collections from customers for 2021, excluding recovery 4,750,000

Accounts written off 9/30/2021 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 12/31/21 165,000

On December 31, 2021, what is the amortized cost of accounts receivable?

Answer: 1,660,000

On December 31, 2021, BIEN Company finished consultation services and accepted in exchange a
promissory note with a face value of P200,000, a due date of December 31, 2024, and a stated rate of
5% with interest receivable at the end of each year. The fair value of the services is not readily
determinable and the note is not readily marketable. Under the circumstances, the note is considered to
have an appropriate imputed rate of interest of 10%. The following interest factors are provided:

INTEREST RATE
Table Factors for Three Periods 5% 10%
Future value of 1 1.15763 1.33100
Present value of 1 0.86384 0.75132
Future of ordinary annuity of 1 3.15250 3.31000
Present value of ordinary annuity of 1 2.72325 2.48685

What is the present value of the note?

a. P200,000

b. P175,133

c. P150,264

d. P24,869

On September 1, BEN Company assigns specific receivables totaling P750,000 to Metrobank as collateral
on a P625,000, 12% note. BEN will continue to collect the assigned accounts receivable. Metrobank
also assesses a 2% service charge on the total accounts receivable assigned. BEN is to make monthly
payments to Metrobank with cash collected on assigned accounts receivable. Collections of assigned
accounts during September totaled P260,000 less cash discounts of P3,500. What amount is owed to
Metrobank by BEN for September collections plus accrued interest on the note to September 30?

a. P266,250

b. P260,000

c. P264,000

d. P262,750

If a promissory note is dishonored, the payee should still record interest revenue.

True
False

On June 9, 2021, KJ Corporation sold merchandise with a list price of P50,000 to MR Company on
account. KJ allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was
made FOB Shipping point. KJ prepaid 2,000 of delivery costs for MR as an accommodation. On June 24,
2021, KJ received from MR a remittance in full payment amounting to

a. P29,400

b. P29,440

c. P30,000

d. P27,440

The direct write-off method records bad debt expense when an account is determined to be
uncollectible.

True

False

On October 31, 2021, TALA Corporation engaged in the following transactions:

· Obtained a P500,000, 6-month loan from Citibank, discounted at 12%. TALA pledged P600,000 of
accounts receivable as security for the loan.

· Factored P1,000,000 of accounts receivable without recourse on a notification basis with

CHINABANK. CHINABANK charged a factoring fee of 5% of the amount of receivables factored and
withheld 10% of the receivables factored.

What is the total cash received from the financing of receivables and the amount of loss, respectively?

a. P1,320,000 and P150,000

b. P1,420,000 and P150,000

c. P1,420,000 and P50,000

d. P1,320,000 and P50,000

What is the initial recognition basis of a non-interest bearing note received in exchange for property?

a. At face value of the note

b. At fair value of the property or note

c. At maturity value of the note

d. At the carrying amount of the property