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REICEIVABLESMULTIPLE CHOICE QUESTIONS-THEORY trade receivables are classified as current assets if they are reasonably expected to be collected A. within one year B. within the normal operating cycle C. within one year or within normal operating cycle, whichever is lower D. within one year or within...

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REICEIVABLES

MULTIPLE CHOICE QUESTIONS-THEORY

1. trade receivables are classified as current assets if they are reasonably expected to be collected A. within one year B. within the normal operating cycle C. within one year or within normal operating cycle, whichever is lower D. within one year or within normal operating cycle, whichever is higher 2. Which of the following statement is true in relation to presentation of receivables in statement of financial position? A. Trade receivables and nontrade receivables are shown separately. B. Nontrade receivables are presented as noncurrent assets. C. Trade account receivables and trade notes receivable shall b presented separately. D. Trade receivable and nontrade receivable which are currently collectible shall be presented as one line item called “trade and other receivables” 3. Accounts receivable shall be recognized initially at A. Face value B. Discounted value C. Maturity value D. Current value 4. Long-term notes receivables which normally bears interest or an interest which is unreasonably low shall be recognized initially at A. Face value B. Discounted value C. Maturity value D. Current value 5. Credit balances in accounts receivables shall be classified as A. Current liabilities B. Part of accounts payable C. Long term liabilities D. Deduction from accounts receivable 6. 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. The entire receivables are shown as current without disclosure of the amount not currently due. B. The entire receivables are shown as noncurrent.

C. Only the portion currently due is shown as current and the balance as noncurrent. D. The entire receivables are shown as current with disclosure of the amount not currently due. 7. Which method of recording bad debt loss in consistent with accrual accounting? A. Allowance method B. Direct write-off method C. Percent of sales method D. Percent of accounts receivable method 8. A method of estimating bad debts that focuses on the income statement whether rather than the statement of financial position is the allowance method based on A. Direct write-off method B. Aging the trade accounts receivable C. Credit sales D. The balance in the trade accounts receivable 9. When the allowance method of recognizing uncollectible accounts is used, the entry to record the write off of a special account would A. Decrease both accounts receivable and the allowance for uncollectible accounts. B. Decrease accounts receivable and increase allowance for uncollectible accounts. C. Increase the allowance for uncollectible accounts and decrease net income. D. Decrease both accounts receivable and net income 10. When an accounts receivable aging schedule is prepared, a series of computations is made to determine estimated uncollectible accounts. The resulting amount from this aging schedule A. When added to the total accounts written off during the year is the desired credit balance of the allowance for doubtful accounts at year-end. B. Is the amount of doubtful accounts expense for the year C. Is the amount that should be added to the beginning allowance for doubtful accounts to get the doubtful accounts expense for the year. D. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year end. 11. When the allowance method of recognizing bad debt expense is used, the allowance for doubtful accounts would decrease when A. Specific account receivable is collected B. Account previously written off is collected C. Account previously written off becomes collectible D. Specific uncollectible account is written off 12. When comparing the allowance method of accounting for bad debts with the direct write off method, which of the following is true? A. The direct write off method is exact and also better illustrates the matching principle.

B. The allowance method is less exact but it better illustrates the matching principle C. The direct write off method is theoretically superior D. The direct write off method requires two separate entries to write off an uncollectible account 13. A debit balance in the allowance for doubtful accounts A. Should never occur B. Is always the result of management not providing a large enough allowance in order to manage earnings C. May occur before the end of period adjustment for uncollectible accounts. D. May exist even after the period of adjustment for uncollectible accounts. 14. 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 on September 30 of next year. The interest receivable on December 31 of the current year would consist of an amount representing A. Three months of accrued interest income B. Nine months of accrued interest income C. Twelve months of accrued interest income D. The excess on October 1 of the present value of the note receivable over its fact amount 15. On July 1, 2012, an entity obtained a two-year 8% note receivable for service rendered. At that time, the market rate of interest are due on June 30, 2014. Interest receivable on December 31, 2012 is A. 5% of the face amount of the note B. 4% of the face amount of the note C. 5% of July 1, 2012 present value of the amount due on June 30, 2014. D. 4% of July 1, 2012 present value of the amount due on June 30, 2014. 16. An entity uses the installment sales method to recognized revenue. Customers pay installments notes in 24 equal monthly amounts which include 12% interest. What is the installment notes receivable six months after the sale? A. 75% of the original sales price B. Less than 75% of the original sales price C. The present value of the remaining monthly payments discounted at 12% D. Less than the present value of the remaining monthly payments discounted at 12% 17. The interest on a non interet bearing note is equal A. The excess of the face value over the present value B. The excess of the present value of over the face value C. The excess of the market value over the present value D. Zero 18. 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 but not December 31 B. December 31 but not July 1 C. July 1 and December 31 D. Neither July 1 nor December 31 19. In an entity’s April 30, 2012 statement of financial position a note receivable was reported as a noncurrent asset and accrued interest for eight months was reported as a current asset. Which of the following terms would fit the entity’s note receivable? A. Both principal and interest are payable on August 31, 2012 and August31, 2013 B. Principal and interest are due December 31, 2012 C. Both principal and interest are payable on December 31, 2012 and December 31, 2013 D. Principal is due August 31, 2013, and interest is due August 31, 2012 and August 31, 2013 20. The “amortized cost” of loan receivable is the amount of 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 amortization recognized and the principal maturity amount. C. The loan receivable is measured initially. D. The loan receivable is measure initially minus principal payment.

STRAIGHT PROBLEMS

PROBLEM 1 On June 3, Arnold Company sold to Chester Company merchandise having a sale price of P3, 000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling P90, terms n/30, was received by Chester On June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company.

Required: a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases. 1) Sales and receivables are entered at gross selling price. 2) Sales and receivables are entered at net of cash discounts.

b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29. PROBLEM 2 Presented below is information from Perez Computers lncorporated. July

1

Sold P20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross method to record cash discounts. 10 Perez received payment from Robertson for the full amount owed from the July transactions. 17 Sold P200, 000 in computers and peripherals to The Clark Store with terms of 2/10,n/30. 30 The Clark Store paid Perez for its purchase of July 17.

Required: Prepare the necessary journal entries for Perez Computers.

PROBLEM 3 Your accounts receivable clerk, Mitra Adams, to whom you pay a salary of P1,500 per month, has just purchased a new Acura. You decided to test the accuracy of the accounts receivable balance of P82,000 as shown in the ledger. The following information is available for your first year in business. 1. Collections from customers P198,000 2. Merchandise purchased 320,000 3. Ending merchandise inventory 90,000 4. Goods are marked to sell at 40% above cost Required: Compute an estimate of the ending balance of accounts receivable from customers that should be appear in the ledger and any apparent shortages. Assume that all sales are made on account.

PROBLEM 4 Jim Carrie Company shows a balance of P181,140 in the Accounts Receivable account on December 31, 2013. The balance consists of the following: Installment accounts due in 2014 Installment accounts due after 2014

P23,000 34,000

Overpayments to vendors 2,640 Due from regular customers, of which P40,000 represents accounts pledged as security for a bank loan 79,000 Advances to employees 1,500 Advances to subsidiary company(due in 2015) 81,000 Required: Compute the amount of trade and other receivables balance to be reported in the statement of financial position of Jim Carrie Company as of December 31,2013. P140,140

PROBLEM 5 On December 31, 2014 the accounts receivable control account of Belle Company had a balance of P6,150,000. An analysis of the accounts receivable account showed the following:

Accounts deemed to be worthless P Advance payments to creditors on purchase orders Advances to affiliated companies Customers’ credit balance arising from sales return Interest receivable on bond investment Other trade accounts receivable - unassigned Subscriptions receivable - ordinary share due in 30 days Trade accounts receivable -assigned Trade installment receivable due 1- 18 months, (including unearned finance charges, P37,500) Trade receivables from officers, due currently 112,500 Trade accounts on which post-dated checks are held (no entries were made on receipts of checks) Total

75,000 300.000 750,000 (450,000) 300,000 1,500,000 1,650,000 1,125,000 637,500

150,000 6,150,000

The correct balance of trade receivables on December 31, 2014 is P3,487,500

PROBLEM 6 Duncan Company reports the following financial information before adjustments.

Debit

Credit

Accounts Receivable P100,000 Allowance for Doubtful Accounts Sales Revenue(all in credit) Sales Return and Allowances

P 2,000 900,000 50,000

Required: Prepared the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 1% of net sales (b) 5% of accounts receivable

PROBLEM 7 At the end of 2014, Aramis company has accounts receivable of P800,000 and an allowance for doubtful accounts of P40,000. On January 16, 2015, Aramis Company determined that its receivable form Ramirez Company of P6,000 will not be collected, and management authorized its write-off. Required: A. Prepare the journal entry to Aramis company to write off the Ramirez receivable. B. What is the net realizable value of Aramis Company’s account receivable before the write-off of the Ramirez Company receivable? C. What is the net realizable value of Aramis company’s accounts receivable after the write– off of the Ramirez receivable? PROBLEM 8 The following are a series of unrelated situations. 1. Halen Company’s unadjusted trial balance at December 31, 2014, included the following accounts. Debit Credit Allowance for doubtful accounts Net Sales

P4,000 P1,200,000

Halen Company estimates its bad debts expense to be 1 ½ of net sales. Determined its bad debt expense for 2014.

2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2014, disclosed the following: Amount estimated to be uncollectible P 180,000 Accounts Receivable 1,750,000 Allowance for doubtful accounts(per book) 125,000 What is the net realizable value of Stuart’s receivables at December 31, 2014? 3. Shares Co. provides for doubtful accounts based on 3% of credit sales. The following data are available for 2014. Credit sales during 2014 P 2,400,000 allowance for doubtful accounts 1/1/14 17,000 Collection of accounts written off in prior years (customer credit was reestablished) 8,000 Customer accounts written off as uncollectible during 2014 30,000 What is the balance in Allowance for Doubtful Accounts at December 31, 2014? P67, 000 4. At the end of its first year operations, December 31, 2014, Darden Inc. reported the following information. Accounts receivable, net of allowance for doubtful accounts

P950,000

Customer account written off as uncollectible during 2014

24,000

Bad debt expense for 2014

84,000

What should be the balance in account receivable at December 31,2014, before subtracting the allowance for doubtful accounts? P1, 010, 000 5. The following accounts were taken from Bullock Inc.’s trial balance at December 31, 2014. Debit Credit Net credit sales Allowance for doubtful accounts Accounts receivable

P750,000 P 14,000 310,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2014? P23, 300 Required: Answer the questions relating to each of the five independent situations as requested.

PROBLEM 9 Manilow Corporation operates in an industry that has a high rate of bad debts before any yearend adjustments, the balance in Manilow’s Accounts Receivable account was P555,000 and Allowance for Doubtful Accounts had a credit balance of P40,000. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedules shown below. Days Account Outstanding

Amount

Less than 16 days

P 300,000

.98

100,000 80,000 40,000 20,000 15,000

.90 .85 .80 .55 .00

Between 16 and 30 days Between 31 and 45 days Between 46 and 60 days Between 61 and 75 days Over 75 days

Probability of Collection\

Required: A. What is the appropriate balance of Allownce for Doubtful Accounts at year-end? P45,000 B. What is the net realizable value of account receivable? P495,000 C. How much is the bad debt expense? P 20,000 PROBLEM 10 From inception of operations to December 31,2014, Fortner Corporation provided for uncollectible accounts receivable under the allowance method. Provisions were made monthly at 2% of credit sales, bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account, and o yearend adjustments to the allowance account were made. Fortner’s usual credit terms are net 30 days. The balance in Allowance for Doubtful Accounts was P130,000 at January 1, 2014. During 2014, credit sales totaled P9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P90,000 of bad debts were written off, and recoveries of accounts previously

written off amounted to P15,OOO. Fortner installed a computer system in November 2014, and an aging of accounts receivable was prepared for the first time as of December 31, 2014. A summary of the aging is as fol lows. Classification by Month of Sale

Balance in Each Category

November—December 2014 July—October January—June Prior to 1/1/14

P1, 080,000 650,000 420,000 150,000

Estimated % Uncollectible 2% 10% 25% 80%

Based on the review of collectability of the account balances in the “prior to 1/1/14” aging category, additional receivables totaling P60, 000 were written off as of December 31, 2014. The 80% uncollectible estimate applies to the remaining P90, 000 in the category. Effective with the year ended December 31, 2014, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. Required: A. Compute the required ending balance Allowance for Doubtful Accounts as of December 31, 2014. B. Prepare the journal entry for the year-end adjustment to Allowance for Doubtful Accounts balance as of December 31, 2014.

PROBLEM 11 Presented below is information related to the Accounts Receivable accounts of Gulistan Inc., during the current year 2014. 1. An aging schedule of the accounts receivable as of December 31, 2014, is as follows.

Age Under 60 days 60—90 days 9 1—120 days Over 120 days

Net Debit Balance P172,342 136, 490 39,924* 23,644 P372,400

% to Be Applied after Correction Is Made 1% 3% 6% P3,700 definitely uncollectible; Estimated remainder uncollectible is 25%

*The P 3,240 write-off of receivables is related to the 91-to-120 day category. 2. The Accounts Receivable control account has a debit balance of P372,400 December 31, 2014. 3. Two entries were made in the Bad Debt Expense account during the vear: (1) a debit on

December 31 for the amount credited to Allowance for Doubtful Accounts, and(20 a credit for P3,240 on November 3, 2014, and a debit to Allowance for doubtful Accounts because of a Bankruptcy.

4. Allowance for Doubtful accounts is as follows for 2014.

Nov.3

Allowance for Doubtful Accounts Uncollectible accounts Jan. 1 Written off 3,240 Dec. 31

Beginning balance 5% of P372,400

8,750 18,620

5. a credit balance exists in Accounts receivable (60-90 days) of P4,840, which represents an advance on a sales contract Required: Assuming that the books hae not been closed for 2014, make the necessary correcting entries.

PROBLEM 12 Presented below are independent situations related to the notes receivable of Sandara Company. 1. Sandara Company has P3,000,000 note receivable from sale of plant bearing interest at 12% per annum. The note is dated June 1, 2012. The note is payable in 3 annual installments of P1, 000,000 plus interest on the unpaid balance every June 1. The initial principal and interest payment was made on June 1, 2013. P2,000,000 2. Sandara Company sold a tract of land to RI Co. on July 1, 2013, for P8, 000,000 under an installment sale contract. Ri Co. signed a 4-year 11% note addition to the down payment of P2, 400,000. The equal annual payments of principal and interest on the note will be P1,805,000 payable on July 1, 2014, 2015, 2016, and 2017. The land had an established cash price of P8,000,000, and its cost to the company was P6,000,000. The collection of the installments on this note is reasonably assured. 3. On January 1013, Sandara Company sold a tract of land to three doctors as an investment. The land, purchase 10 years ago, was carried on Sandvalue of P125, 000. Sandara received a noninterest-bearing note for P220, 000 from the doctors. The note is due on Decembr 31, 2014. There is no readily available market value for the land, but the...