FAR 4.2MC - Receivables PDF

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LA SALLE UNIVERSITYCOLLEGE OF BUSINESS AND ACCOUNTANCYSecond Semester of A. 2019- INTEGRATED ENHANCEMENT COURSE FOR ACCOUNTANCY FAR: Financial Accounting and Reporting by Lowelle C. Pacot, CPA, MMA MULTIPLE CHOICEI. ACCOUNTS RECEIVABLE The category "trade receivables" includes a. a...

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LA SALLE UNIVERSITY COLLEGE OF BUSINESS AND ACCOUNTANCY Second Semester of A.Y. 2019-2020 INTEGRATED ENHANCEMENT COURSE FOR ACCOUNTANCY FAR: Financial Accounting and Reporting by Lowelle C. Pacot, CPA, MMA MULTIPLE CHOICE

1.

2.

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

3.

What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet? a. As offsets to 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.

4.

a.

I. ACCOUNTS RECEIVABLE The category "trade receivables" includes a. advances to officers and employees. b. income tax refunds receivable. c. claims against insurance companies for casualties sustained. d. none of these.

When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce prompt payment. Such a discount is called a(n) a. trade discount. b. nominal discount. c. enhancement discount. d. cash discount.

5.

Trade discounts are a. not recorded in the accounts; rather they are a means of computing a price. b. used to avoid frequent changes in catalogues. c. used to quote different prices for different quantities purchased. d. all of the above.

6.

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as a. a deduction from sales in the income statement. b. an item of "other expense" in the income statement. c. a deduction from accounts receivable in determining the net realizable value of accounts receivable. d. sales discounts forfeited in the cost of goods sold section of the income statement.

7.

Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because

b. c. d.

most short-term receivables are not interestbearing. the allowance for uncollectible accounts includes a discount element. the amount of the discount is not material. most receivables can be sold to a bank or factor.

8.

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.

9.

Which of the following methods of determining annual bad debt expense best achieves the matching concept? a. Percentage of sales b. Percentage of ending accounts receivable c. Percentage of average accounts receivable d. Percentage of average accounts receivable

10. 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 11. The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach a. gives a reasonably correct statement of receivables in the balance sheet. b. best relates bad debt expense to the period of sale. c. is the only generally accepted method for valuing accounts receivable. d. makes estimates of uncollectible accounts unnecessary. 12. 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.

FAR 4.2: LOANS AND RECEIVABLES

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c.

d.

Any discount or premium resulting from the determination of present value in notes receivable transactions is an asset or liability respectively. Valuation accounts should be appropriately offset against the proper receivable accounts.

13. At the close of its first year of operations, December 31, 2017, Linn Company had accounts receivable of ₱540,000, after deducting the related allowance for doubtful accounts. During 2017, the company had charges to bad debt expense of ₱90,000 and wrote off, as uncollectible, accounts receivable of ₱40,000. What should the company report on its balance sheet at December 31, 2017, as accounts receivable before the allowance for doubtful accounts? a. ₱670,000 c. ₱590,000 b. ₱490,000 d. ₱440,000 14. Before year-end adjusting entries, Bass Company's account balances at December 31, 2017, for accounts receivable and the related allowance for uncollectible accounts were ₱600,000 and ₱45,000, respectively. An aging of accounts receivable indicated that ₱62,500 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is a. ₱582,500. c. ₱537,500. b. ₱492,500. d. ₱555,000. 15. During the year, Jantz Company made an entry to write off a ₱4,000 uncollectible account. Before this entry was made, the balance in accounts receivable was ₱50,000 and the balance in the allowance account was ₱4,500. The net realizable value of accounts receivable after the write-off entry was a. ₱50,000. c. ₱49,500. b. ₱41,500. d. ₱45,500. 16. The following information is available for Reagan Company: Allowance for doubtful accounts at December 31, 2016 Credit sales during 2017 Accounts receivable deemed worthless and written off during 2017

₱8,000 400,000 9,000

As a result of a review and aging of accounts receivable in early January 2018, however, it has been determined that an allowance for doubtful accounts of ₱5,500 is needed at December 31, 2017. What amount should Reagan record as "bad debt expense" for the year ended December 31, 2017? a. ₱4,500 c. ₱5,500 b. ₱6,500 d. ₱13,500

A trial balance before adjustments included the following: Debit Credit Sales ₱425,000 Sales returns and allowance ₱14,00

Accounts receivable Allowance for doubtful accounts

0 43,000 760

17. If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment is a. ₱6,700. c. ₱8,220. b. ₱8,500. d. ₱9,740. 18. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of the adjustment is a. ₱3,540. c. ₱4,300. b. ₱4,224. d. ₱5,060. 19. Simpson Company has the following account balances at year-end: Accounts receivable ₱60,000 Allowance for doubtful 3,600 accounts Sales discounts 2,400 Simpson should report accounts receivable at a net amount of a. ₱54,000. c. ₱56,400. b. ₱57,600. d. ₱60,000. 20. Holtzman Corporation had a 1/1/2017 balance in the Allowance for Doubtful Accounts of ₱10,000. During 2017, it wrote off ₱7,200 of accounts and collected ₱2,100 on accounts previously written off. The balance in Accounts Receivable was ₱200,000 at 1/1 and ₱240,000 at 12/31. At 12/31/2017, Holtzman estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2017? a. ₱2,000. c. ₱7,100. b. ₱9,200. d. ₱12,000. 21. Rusch Corporation had a 1/1/17 balance in the Allowance for Doubtful Accounts of ₱12,000. During 2017, it wrote off ₱8,640 of accounts and collected ₱2,520 on accounts previously written off. The balance in Accounts Receivable was ₱240,000 at 1/1 and ₱288,000 at 12/31. At 12/31/17, Rusch estimates that 5% of accounts receivable will prove to be uncollectible. What should Rusch report as its Allowance for Doubtful Accounts at 12/31/17? a. ₱5,760. c. ₱5,880. b. ₱8,280. d. ₱14,400. 22. Sandler Company has the following account balances at year-end: Accounts receivable ₱80,000 Allowance for doubtful 4,800 accounts Sales discounts 3,200 Sandler should report accounts receivable at a net amount of a. ₱72,000. c. ₱75,200. b. ₱76,800. d. ₱80,000. 23. Delgado Corporation had a 1/1/17 balance in the Allowance for Doubtful Accounts of ₱20,000. During 2017, it wrote off ₱14,400 of accounts and collected FAR 4.2: LOANS AND RECEIVABLES

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₱4,200 on accounts previously written off. The balance in Accounts Receivable was ₱400,000 at 1/1 and ₱480,000 at 12/31. At 12/31/17, Delgado estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2017? a. ₱4,000. c. ₱14,200. b. ₱18,400. d. ₱24,000. 24. Burnett Corporation had a 1/1/17 balance in the Allowance for Doubtful Accounts of ₱15,000. During 2017, it wrote off ₱10,800 of accounts and collected ₱3,150 on accounts previously written off. The balance in Accounts Receivable was ₱300,000 at 1/1 and ₱360,000 at 12/31. At 12/31/17, Burnett estimates that 5% of accounts receivable will prove to be uncollectible. What should Burnett report as its Allowance for Doubtful Accounts at 12/31/17? a. ₱7,200. c. ₱7,350. b. ₱10,350. d. ₱18,000. II. NOTES RECEIVABLE 25. According to the PFRSs, receivables except trade receivables, are initially recognized at a. Fair value b. Cost c. Present value d. Fair value plus direct transaction costs 26. Mythical Imaginary Co. makes all of its sales on 30-day credit terms. During the period, Mythical made a special sale to one of its customers, wherein the customer was extended a 9-month credit term. Mythical received a ₱10M noninterest-bearing note on the sale. According to the PFRSs, Mythical should initially recognize the receivable at (ignore practical expedient of PFRS 15) a. Face amount b. Present value c. Appraised value d. Fair value less costs to sell 27. Short-term receivables including non-trade receivables that are currently collectible may not be discounted to the present values because a. Their face value are normally immaterial b. They are so near their maturity dates that their values do not change c. Present value computation is very complex d. The effect of discounting may be immaterial 28. Svelte Slender Co. receive a 3-year, 3%, note receivable from one of its customers. The current rate of the date of receipt of the note was 12%. Svelte should initially recognize the receivable at a. Face amount b. Present value c. Appraised value d. Fair value less costs to sell 29. Which of the following rates may be used to compute for the interest income on a receivable? a. Imputed rate of interest b. Current rate c. Effective interest rate d. Nominal rate

30. Which of the following rates may be used to compute for the interest receivable on a note receivable? a. Imputed rate of interest b. Current rate c. Yield rate d. Nominal rate 31. A noninterest-bearing note a. Bears no effective interest rate b. Has a specified principal but an unspecified interest rate c. Does not result to any interest income d. Has an unspecified principal and an unspecified interest 32. The imputed interest rate of interest is a. The prevailing rate for a similar instrument of an issuer with a similar credit rating b. A rate of interest that discounts the face (nominal) amount of the receivable to the current cash sales price of the goods or services c. The more clearly determinable of either (a) or (b) d. None of these 33. The concept of time value of money a. Is irrelevant in financial reporting b. States that the money loses its value over time because of inflation c. Provides that contractual agreements to receive cash or to pay cash in the future will earn or incur interests due to passage of time regardless of whether interests have been agreed upon or not d. Is a pervasive concept which affects only financial reporting but not managerial accounting 34. When a note receivable earns compounded interest, a. The principal is due at maturity but interests are due periodically b. It means that the note is a long-term asset c. Both the principal and interest are due only at maturity date d. Interest income on the note is computed using a very complex formula 35. When the contractual cash flows on a debt instrument that is measured at amortized cost are due in lump sum, the present value (PV) factor used to discount the future cash flows is a. PV of ₱1 b. PV of ordinary annuity of ₱1 c. PV of an annuity due of ₱1 d. PV of a deferred annuity 36. When the contractual cash flows on a debt instrument is measured at amortized cost are due in installments and the first installments is due a period from the date of the instrument, the present value (PV) factor used to discount the future cash flows is a. PV of ₱1 b. PV of ordinary annuity of ₱1 c. PV of annuity due of ₱1 d. PV of deferred annuity 37. When the contractual cash flows on a debt instrument that is measured at amortized cost are due in FAR 4.2: LOANS AND RECEIVABLES

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installments and the first installment is due at the date of the instrument, the present value (PV) factor used to discount the future cash flows is a. PV of ₱1 b. PV of ordinary annuity of ₱1 c. PV of an annuity due of ₱1 d. PV of a deferred annuity 38. Total interest income recognized over the life of a noninterest-bearing note is a. Zero b. Greater than the total interest received on the note c. Less than the total interest received on the note d. Equal to the unearned interest income on initial recognition 39. The present value of the debt instrument is computed by a. Multiplying the future cash flows from the note by an appropriate present value factor b. Adding the future cash flows c. Adding the future cash flows from the principal to the sum of the periodic interest receivable d. Dividing the future cash flows from the note by an appropriate present value factor 40. At the beginning of 2016, Finney Company received a three-year zero-interest-bearing ₱1,000 trade note. The market rate for equivalent notes was 8% at that time. Finney reported this note as a ₱1,000 trade note receivable on its 2016 year-end statement of financial position and ₱1,000 as sales revenue for 2016. What effect did this accounting for the note have on Finney's net earnings for 2016, 2017, 2018, and its retained earnings at the end of 2018, respectively? a. Overstate, overstate, understate, zero b. Overstate, understate, understate, understate c. Overstate, overstate, overstate, overstate d. Overstate, understate, understate, zero 41. Marley Company received a seven-year zero-interestbearing note on February 22, 2017, in exchange for property it sold to O’Rear Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2017, 7.5% on December 31, 2007, 7.7% on February 22, 2018, and 8% on December 31, 2018. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2017 and 2018, respectively? a. 0% and 0% c. 7% and 7% b. 7% and 7.7% d. 7.5% and 8% 42. On December 31, 2017, Eller Corporation sold for ₱75,000 an old machine having an original cost of ₱135,000 and a book value of ₱60,000. The terms of the sale were as follows: ₱15,000 down payment; ₱30,000 payable on December 31 each of the next two years. The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2017 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.) a. ₱52,773. c. ₱67,773.

b.

₱60,000.

d. ₱105,546.

43. On January 1, 2017, Melanie Co. sold a building, which had a carrying amount of ₱350,000, receiving a ₱125,000 down payment and, as additional consideration, a ₱400,000 noninterest bearing note due on January 1, 2020. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type at January 1, 2017, was 10%. The present value of 1 at 10% for three periods is 0.75. What amount of interest should be included in Melanie’s 2017 income statement? a. ₱0 c. ₱30,000 b. ₱35,000 d. ₱40,000 44. On January 1, 2017, Kristelle Co. sold goods to Jane Co. Jane signed a noninterest-bearing note requiring payment of ₱60,000 annually for seven years. The first payment was made on January 1, 2017. The prevailing rate of interest rate of interest for this type of note at date of issuance was 10%. Kristelle should record the sales revenue in January 2017 of a. ₱321,600 c. ₱292,200 b. ₱261,600 d. ₱214,200 Use the following information to answer the next two questions: On January 2, 2017, Zyrus Co. sold equipment with a carrying amount of ₱480,000 in exchange for a ₱600,000 noninterest bearing note due January 2, 2020. There was no established exchange price for this equipment. The prevailing rate of interest for a note of this type at January 2, 2017, was 10%. 45. In Zyrus’ 2017 income statement, what amount should be reported as interest income? a. ₱9,000 c. ₱45,000 b. ₱50,000 d. ₱60,000 46. In Zyrus’ 2017 income statement, what amount should be reported as gain (loss) on sale of machinery? a. ₱(30,000) loss c. ₱30,000 gain b. ₱120,000 gain d. ₱270,000 gain 47. On December 31, 2017, Jet Co. received two ₱10,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The note from Hart Corp., made under customary trade terms, is due0020in nine months and the note from Maxx, Inc. is due in five years. The market interest rate for similar notes on December 31, 2017, was 8%. The compound interest factors to convert future values into present values at 8% follow: Present value of ₱1 due in nine 0.944 months Present value of ₱1 due in five 0.680 years At what amounts should these two notes receivable be reported in Jet’s December 31, 2017, balance sheet? a. Hart, ₱9,440; Maxx, ₱6,800 b. Hart, ₱9,652; Maxx, ₱7,820 c. Hart, ₱10,000; Maxx, ₱6,800 d. Hart, ₱10,000; Maxx, ₱7,820 FAR 4.2: LOANS AND RECEIVABLES

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48. Frame Co. has an 8% note receivable dated June 30, 2017, in the original amount of ₱150,000. Payments of ₱50,000 in principal plus accrued interest are due annually on July 1, 2018, 2019, and 2020. In its June 30, 2017, balance sheet, what amount should Frame report as a current asset for interest on the note receivable? a. ₱0 c. ₱4,000 b. ₱8,000 d. ₱12,000 49. On June 1, 2017, Yola Corp. loaned Dale ₱500,000 on a 12% note, payable in five annual installments of ₱100,000 beginning January 2, 2018. In connection with this loan, Dale was required to deposit ₱5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Dale after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2017. Dale made timely payments through November 1, 2017. On January 2, 2018, Yola received payment of the first principal installment plus all interest due. At December 31, 2017, Yola’s interest receivable on the loan to Dale should be a. ₱0 c. ₱5,000 b. ₱10,000 d. ₱15,000 50. Leaf Co. purchased from Oak Co. a ₱20,000, 8%, 5-year note that required five equal annual year-end payments of ₱5,009. The note was discounted to yield 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of ₱19,485. What should be the total interest revenue earned by Leaf over the life of this note? a. ₱5,045 c. ₱5,560 b. ₱8,000 d. ₱9,000 5...