Financial Accounting and Reporting

Notes Receivable, Loans Receivable and Receivable Financing

1. At initial recognition, an entity shall measure a loan receivable at

a. Fair value
b. Fair value plus transaction costs that are directly attributable to the
acquisition of the asset.
c. Amortized cost
d. Cost
2. A form of receivables financing which is equivalent to an absolute sale
of accounts receivable is
a. Assignment of accounts receivable
b. factoring
c. Pledge of accounts receivable
d. Discounting of notes receivable

3. Which of the following is a method to generate cash from accounts receivable?

I. Assignment
II. Factoring
a. Neither I nor II
b. II only
c. Both I and II
d. I only
4. The “amortized cost” of loan receivable is the amount at which
a. The loan receivable is measured initially minus principal repayment,
plus or minus the cumulative amortization of any difference between
the initial amount recognized and the principal maturity amount, minus
reduction for impairment.
b. The loan receivable is measured initially minus principal repayment, plus or
minus the cumulative amortization of any difference between the initial amount
recognized and the principal maturity amount.
c. The loan receivable is measured initially.
d. The loan receivable is measured initially minus principal repayment.
5. On January 1, 20x1, ABC Co. sold inventory costing 1,800,000 with a list price
of 2,200,000 and a cash price of 2,000,000 in exchange for a 2,400,000 noninterest-
bearing note due on December 31, 20x3.
How much is the initial measurement of the receivable?
= 2,000,000

6. On July 1 of the current year, an entity received a one-year note receivable

bearing interest at the market rate. The face amount of the note receivable and the
entire amount of the interest are due in one year. When the note receivable was
recorded on July 1, which of the following was debited?
I. Interest receivable
II. Unearned discount on note receivable
a. Neither I nor II
b. II only
c. Both I and II
d. I only
7. Buswang Beach Bank loaned Boracay Company P7,500,00 on December 31,
2008. The terms of the loan were payment in full on December 31, 2013 plus
annual interest payment at 11%. The interest payment was made as scheduled on
December 31, 2009. However, due to financial setbacks. Boracay was unable to
make its 2010 interest payment. Buswang Beach considers the loan impaired and
projects the cash flows from the loan on December 31, 2010. The bank accrue the
interest at December 31, 2010, but did not continue to accrue interest for 2011 due
to the impairment of the loan. The projected cash flows are:
Date of cash flow Amount projected on
December 31, 2010
December 31, 2011 500,000
December 31, 2012 1,000,000
December 31, 2013 2,000,000
December 31, 2014 4,000,000
How much is the loan impairment loss on December 31, 2010?
= P2,965,750
8. A 90-day 15% interest bearing note receivable is sold to a bank with recourse
after being held for 30 days. The proceeds are calculated using a 12% interest
rate. The note receivable has been
I. Discounted
II. Pledged
a. Neither I nor II
b. I only
c. II only
d. Both I and II

9. On July 1 of the current year, an entity received a one-year note receivable

bearing interest at the market rate. The face amount of the note receivable and the
entire amount of the interest are due in one year. The interest receivable account
would show a balance on
a. July 1 and December 31
b. December 31 but not July 1
c. July 1 but not December 31
d. Neither July 1 nor December 31
10. A 60-day, 12% interest bearing note receivable was immediately discounted at a
bank at 15%. The proceeds received from the bank upon discounting would be the
a. Maturity value less the discount at 15%
b. Face Value less the discount at 15%
c. Maturity value plus the discount at 15%
d. Maturity value less the discount at 12%
11. A higher interest rate results to
a. increased amount of present value
b. decreased amount of present value
c. answer cannot be determined due to insufficient data
d. Same amount of present value
12. Long-term notes receivable which bears an interest shall be recognized initially
at
a. Present Value
b. Face Value
c. Current Value
d. Maturity Value
13. The interest on a non-interest bearing note is equal to

a. The excess of the face value over the present value

b. zero

c. The excess of the market value over the present value of the note
d. The excess of the present value over the face value
14. Which of the following factors would show the largest value for an interest rate
of 12% for six periods?
a. Present value of Lump sum
b. Present value of an annuity due of 1
c. Present value of an ordinary annuity of 1
d. Present value of 1

15. Gar company factored its receivables without recourse with Ross Bank. Gar
received cash as a result of this transaction which is best described as a
a. Sale of Gar’s accounts receivable to Ross, with the risk of uncollectible accounts
retained by Gar.
b. Loan from Ross collateralized by Gar’s accounts receivable.
c. Sale of Gar’s accounts receivable to Ross, with the risk of uncollectible
accounts transferred to Ross.
d. Loan from Ross to be repaid by the proceeds from Gar’s accounts receivable.
16. The present value of 1 for a period of zero equals
a. 0

b. 1

c. Error!

d. Answer depends on the interest rate

17. On January 1, 20x1, ABC Co. sold a transportation equipment with a historical
cost of ₱1,000,000 and accumulated depreciation of ₱300,000 in exchange for cash
of ₱100,000 and a noninterest-bearing note receivable of ₱800,000 due on January
1, 20x4. The prevailing rate of interest for this type of note is 12%.
How much is the carrying amount of the receivable on December 31, 20x1?
= P637,773
18. Daisy Company sold accounts receivable without recourse with face amount of
P6,000,000. The factor charged 15% commission on all accounts
receivable factored and withheld 10% of the accounts factored as protection against
customer returns and other adjustments. Daisy company had previously
established an allowance for doubtful accounts of P200,000 for these accounts. By
year-end, the entity had collected the factor’s holdback there being no customer
returns and other adjustments.
What is the loss on factoring?
= P900,000
19. A shorter period results to

a. Increased amount of present value

b. decreased amount of present value

c. none of the choices

d. same amount of present value

20. In the case of long-term installments receivable (real estate installment sales)
where a major portion of the receivables will be collected beyond the normal
operating cycle
a. Only the portion currently due is shown as current and the balance as
non-current.
b. The entire receivables are shown as non-current

c. The entire receivables are shown as current with disclosure of the amount not
currently due.

d. The entire receivables are shown as current without disclosure of the amount not
currently due.
21. An entity sells goods for ₱150,000 to a customer who was granted a special
credit period of 1 year. The entity normally sells the goods for ₱120,000 with a
credit period of one month or with a ₱10,000 discount for outright payment in cash.
How much is the initial measurement of the receivable if the entity does not use the
practical expedient allowed under PFRS 15?
= P110,000
22. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with
accumulated depreciation of ₱1,100,000 in exchange for a 3-year, ₱900,000
noninterest-bearing note receivable due as follows:
Date Amount of installment
December 31, 20x1 400,000
December 31, 20x2 300,000
December 31, 20x3 200,000
Total 900,000
The prevailing rate of interest for this type of note is 10%. How much is the carrying
amount of the receivable on December 31, 20x1?
= P438,002
23. On January 1, 20x1, Mojo Co. sold transportation equipment with a historical
cost of ₱20,000,000 and accumulated depreciation of ₱7,000,000 in exchange for
cash of ₱500,000 and a noninterest-bearing note receivable of ₱8,000,000 due in 4
equal annual installments starting on December 31, 20x1 and every December 31
thereafter. The prevailing rate of interest for this type of note is 12%.
How much is the non-current portion of the receivable on December 31, 20x1?
= P3,379,978

24. It is a predetermined amount withheld by a factor as a protection against

customer returns, allowances and other special adjustments.
a. Factor's Holdback
b. Service charge
c. Loss on factoring
d. Equity in assigned accounts
25. An entity sells goods either on cash basis or on 6-month installment basis. On
January 1, 20x1, goods with cash price of ₱50,000 were sold at an installment price
of ₱75,000. Which of the following statements is correct?
a. The P20,000 difference between the cash price and installment price is
recognized as interest income on the date of sale

b. Net Receivable of P50,000 is recognized on the date of sale.

c. Net Receivable of P50,000 is recognized upon full payment of the total price.

d. Net receivable of P75,000 is recognized on the date of sale.

On January 1, 2009, Batac Company loaned Badoc Company amounting to
P2,000,000 and received a two-year, 6%, P2,000,000 note. The note calls for
annual interest to be paid each December 31. Batac collected the 2009 interest on
schedule. However, on December 31, 2010, based on the Badoc’s recent financial
difficulties, Batac expects that the 2010 interest, which was recorded in the books,
will not be collected and that only P1,200,000 of the principal will be recovered.
The 1,200,000 principal amount is expected to be collected in two equal
installments on December 31, 2012 and December 2014. The prevailing interest
rate for similar type of the note as of December 31, 2010 is 8%.
26. The present value of the expected future cash flows as of December 31, 2010 is
= P1,009,260
27. The amount of loan impairment loss in 2010 is
= P1,110,740
28. How much is the interest income for the year 2011?
= P60,556
29. Present value is
a. the value now of a future amount

b. The amount that must be invested now to produce a known future value

c. all of the choices

d. always smaller than the future value

30. On December 1, 2010, Bamboo company assigned specific accounts

receivable totaling P2,000,000 as collateral on a P1,500,000, 12% note from a
certain bank. Bamboo company will continue to collect the assigned accounts
receivable. In addition to the interest on the note, the bank also charged a 5%
finance fee deducted in advance on the P1,500,000 value of the note. The
December collections of assigned accounts receivable amounted to P1,000,000 less
cash discounts of P50,000. On December 31, 2010, Bamboo company remitted the
collections to the bank in payment for the interest accrued on December 31, 2010
and the note payable.
How much is the Equity of A/R Assigned as of December 31, 2010?
= P435,000
31. On January 1, 20x1, ABC Co. sold a transportation equipment with a historical
cost of ₱1,000,000 and accumulated depreciation of ₱300,000 in exchange for cash
of ₱100,000 and a noninterest-bearing note receivable of ₱800,000 due on January
1, 20x4. The prevailing rate of interest for this type of note is 12%.
How much is the interest income in 20x1?
= P68,333
32. Sigay Bank granted a loan to a borrower in the amount of P5,000,000 on January
1, 2010. The interest rate on the loan is 10% payable annually starting December
31, 2010. The loan matures in five years on December 31, 2014. Sigay Bank incurs
P39,400 of direct loan origination cost and P10,000 of indirect loan origination cost.
In addition, Sigay Bank charges the borrower an 8% non-refundable loan origination
fee.
The carrying amount of the loan as of January 1, 2010 is
= P4,639,400
33. If there is evidence that an impairment loss on loan receivable has been
incurred, the loss is equal to the
a. Excess of the carrying amount of the loan receivable over the present
value of the cash flows related to the loan.

b. Excess of the present value of cash flows related to the loan over the carrying
amount of the loan receivable.

c. Excess of the principal amount of the loan over its carrying amount.

d. Excess of the carrying amount of the loan over the principal amount of the loan.

34. Daisy Company sold accounts receivable without recourse with face amount of
P6,000,000. The factor charged 15% commission on all accounts
receivable factored and withheld 10% of the accounts factored as protection against
customer returns and other adjustments. Daisy company had previously
established an allowance for doubtful accounts of P200,000 for these accounts. By
year-end, the entity had collected the factor’s holdback there being no customer
returns and other adjustments.
How much cash was initially received from factoring?
= P4,500,000
Appari Bank granted a loan to a borrower on January 1, 2010. The interest rate on
the loan is 10% payable annually starting December 31, 2010. The loan matures in
five years on December 31, 2013. The data related to the loan are:
Principal amount 4,000,000
Direct origination cost 61,500
Origination fee received from borrower 350,000
35. The effective rate on the loan after considering the direct origination cost and
origination fee received is 12%.
What is the carrying amount of the loan receivable on January 1, 2010?
= P3,711,500
36. The effective rate on the loan after considering the direct origination cost and
origination fee received is 12%.
What is the interest income for December 31, 2010?
= P445,380
37. Subsequent to initial recognition, a loan receivable shall be measured at
a. Cost

b. Amortized cost using the effective interest method

c. Fair value

d. Amortized cost using the straight line method

38. On January 1, 20x1, Mojo Co. sold transportation equipment with a historical
cost of ₱20,000,000 and accumulated depreciation of ₱7,000,000 in exchange for
cash of ₱500,000 and a noninterest-bearing note receivable of ₱8,000,000 due in 4
equal annual installments starting on December 31, 20x1 and every December 31
thereafter. The prevailing rate of interest for this type of note is 12%.
How much is the Interest income in 20x1?
= P728,952
39. On October 1 of the current year, an entity received a one-year note receivable
bearing interest at the market rate. The face amount of the note receivable and the
entire amount of the interest are due in one year. The interest receivable account
at December 31 of the current year would consist of an amount representing
a. Nine months of accrued interest income

b. Twelve months of accrued interest income

c. The excess at October 1 of the present value of the note receivable over its face
value

d. Three months of accrued interest income

40. Which of the following events does not necessarily provide objective evidence
that a receivable is impaired?
a. A downgrade of the debtor’s credit rating

b. Default or delinquency in interest or principal payment

c. Significant financial difficulty of the debtor

d. Bankruptcy proceedings undertaken by the debtor

41. When the accounts receivable of an entity are sold outright to a bank which
normally buys accounts receivable, the accounts receivable have been
a. Pledged

b. Collateralized

c. Assigned

d. Factored
42. The account credited when a note receivable is discounted with recourse is
a. Accounts Receivable

b. Liability on discounted notes.

c. Allowance for discounted notes

d. Notes Receivable
43. On December 1, 2010, Bamboo company assigned specific accounts
receivable totaling P2,000,000 as collateral on a P1,500,000, 12% note from a
certain bank. Bamboo company will continue to collect the assigned accounts
receivable. In addition to the interest on the note, the bank also charged a 5%
finance fee deducted in advance on the P1,500,000 value of the note. The
December collections of assigned accounts receivable amounted to P1,000,000 less
cash discounts of P50,000. On December 31, 2010, Bamboo company remitted the
collections to the bank in payment for the interest accrued on December 31, 2010
and the note payable.
How much cash was received from the assignment of accounts receivable on
December 1, 2010?
= P1,425,000

44. On January 1, 20x1, Mojo Co. sold transportation equipment with a historical
cost of ₱20,000,000 and accumulated depreciation of ₱7,000,000 in exchange for
cash of ₱500,000 and a noninterest-bearing note receivable of ₱8,000,000 due in 4
equal annual installments starting on December 31, 20x1 and every December 31
thereafter. The prevailing rate of interest for this type of note is 12%.
How much is the current portion of the receivable on December 31, 20x1?
= P1,423,574
45. On November 1, 2010, Davis Company discounted with recourse at 10% a one-
year, non-interest bearing, P2,050,000 note receivable maturing on January 31,
2010. The discounting of the note receivable is accounted for as a conditional sale
with recognition of a contingent liability.
What is the amount of contingent liability for this note must Davis disclose in its
financial statements for the year ended December 31, 2010?
= P2,050,000