I. MULTIPLE CHOICES 7.

7. When the direct write off method of recognizing the bad debt expense is used, the entry
to write off a specific customer account would
1. Which of the method of recording bad debt loss is consistent with accrual accounting?
a. Increase net income
a. Allowance method c. Percent of sales method
b. Have no effect on net income
b. Direct write off method d. Percent of accounts receivable method
c. Increase the accounts receivable balance and increase net income
2. A method of estimating bad debts that focuses on the income statement rather than the
d. Decrease the accounts receivable balance and decrease net income
statement of financial position is the allowance method based on
8. At initial recognition, an entity shall measure a loan receivable at
a. The balance in the trade accounts receivable c. Credit sales
a. Cost
b. Aging the trade accounts receivable d. Direct write off
b. Amortized cost
3. When a specific customer’s account receivable is written off as uncollectible, what will
c. Fair Value
be the effect on net income under each of the following methods of recognizing bad
d. Fair value plus transaction costs that are directly attributable to the acquisition of
debt expense?
the asset.
Allowance Direct write off
9. Subsequent to initial recognition, a loan receivable shall be measured at
a. None Decrease
a. Cost
b. Decrease None
c. Decrease Decrease b. Amortized cost using the straight line method
d. None None c. Amortized cost using the effective interest method
4. When the allowance method of recognizing bad debt expense is used, the allowance for d. Fair value
doubtful accounts would decrease when 10. If account s receivable are pledge against borrowings, the amount of accounts
a. Specific account receivable is collected receivable pledged shall be
b. Account previously written off is collected a. Excluded from total receivables with disclosure.
c. Account previously written off becomes uncollectible b. Excluded from total receivables without disclosure
d. Specific uncollectible account is written off c. Included in total receivables with disclosure
5. When the allowance method of recognizing bad debt expense is used, the entries at the d. Included in total receivables without disclosure
time of collection of an account previously written off would 11. It is a financing arrangement whereby one party formally transfers its right to accounts
a. Decrease the allowance for doubtful accounts receivable to another party in consideration for a loan.
b. Increase net income a. Pledge c. Factoring
c. Have no effect on the allowance for doubtful accounts b. Assignment d. Discounting
d. Have no effect on net income 12. It is a financing arrangement that is usually done on a “without recourse, notification
6. The entry debiting accounts receivable and crediting allowance for doubtful accounts basis”.
would be made when a. Pledge c. Factoring
a. A customer pays its account balance b. Assignment d. Discounting
b. A customer defaults on its account 13. When accounts receivable are factored
c. A previously defaulted customer pays its outstanding balance a. Accounts receivable shall be credited
d. Estimated uncollectible receivable are too low b. Payable to factor is credited
c. A contingent liability is ordinarily created
 d. The factoring is accounted as a borrowing The total sales comprised 80% sales on account and 20% cash sales. Total collections
14. It is a predetermined amount withheld by a factor as a protection against customer from customers, excluding cash sales, amounted to P6,000,000.
returns, allowances and other special adjustments.
a. Equity in assigned accounts c. Factor’s holdback 1. What is the cost of goods sold?
2. What is the amount of sales on account?
b. Service charge d. Loss on factoring
3. What is the net realizable value of accounts receivable at year-end?
15. Which of the following is a method to generate cash from accounts receivable?
I. Assignment PROBLEM 3
II. Factoring
a. I only c. Both I and II Delta Company sold goods to wholesalers on terms 2/15, net 30. The entity had no
b. II only d. Neither 1 nor II cash sales but 50% of the customers took advantage of the discount.

II. PROBLEM SOLVING The entity used the gross method of recording sales and accounts receivable.

PROBLEM 1 An analysis of the trade accounts receivable at year-end revealed the following:

Roxy Company provided the following information relating to accounts receivable for Age Amount Collectible
the current year: 0 – 15 days 2,000,000 100%
16 – 30 days 1,400,000 95%
Accounts Receivable on January 1 1,300,000 31 – 60 days 400,000 90%
Credit Sales 5,400,000 Over 60 days 200,000 50%
Collections from customers, excluding recovery 4,750,000 4,000,000
Accounts written off 125,000
Collections of accounts written off in prior year (customer
credit was not reestablished) 25,000 1. What amount should be reported as allowance for sales discount at year-end?
Estimated uncollectible receivables per aging of receivables at
2. What amount should be reported as allowance for doubtful accounts at year-
December 31 165,000
end?
1. What is the balance of accounts receivable, before allowance for doubtful 3. What is the net realizable value of accounts receivable at year-end?
accounts on December 31? PROBLEM 4

PROBLEM 2
Germany Company started business at the beginning of current year. The entity
established an allowance for doubtful accounts estimated at 5% of credit sales. During
the year, the entity wrote off P50,000 of uncollectible accounts.
Further analysis showed that merchandise purchased amounted to P9,000,000 and
ending merchandise inventory was P1,500,000. Goods were sold at 40% above cost.
At the beginning of the current year, Jamin Company had a credit balance of 260,000
in the allowance for uncollectible accounts. Based on past experience, 2% of credit
sales would be uncollectible.
During the current year, the entity wrote off P325,000 uncollectible accounts. Credit
sales for the year totaled P9,000,000.
1. What is the uncollectible accounts expense for the year?
 2. What amount should be reported as allowance for uncollectible accounts at
year-end?
PROBLEM 5
On December 1, 2017, Bamboo Company assigned specific accounts receivable
totaling P4,000,000 as collateral on a P3,000,000, 12% note from a certain bank. The
entity 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 P3,000,000 value of the note.
The December collections of assigned accounts receivable amounted to P2,000,000
less cash discounts of P100,000. On December 31, 2017, the entity remitted the
collections to the bank in payment for the interest accrued on December 31, 2017 an
the note payable.
The entity accepted sales returns of P150,000 on the assigned accounts and wrote off
assigned accounts of P200,000.
1. What amount of cash received from the assignment of accounts receivable on
December 1, 2017?
2. What is the carrying amount of note payable on December 31, 2017?
3. What is the balance of accounts receivable – assigned on December 31, 2017?
4. What amount should be disclosed as the entity of Bamboo Company in
assigned accounts on December 31, 2017?
PROBLEM 6
Crater Company factored without recourse P2,000,000 of accounts receivable with a
bank.
The finance charge is 3% and 5% was retained to cover sales discounts, sales returns
and sales allowances.
1. What amount of cash was received on the sale of accounts receivable?
2. What amount should be recognized as loss on factoring?
PROBLEM 7
Rand Company accepted from a customer a P4,000,000, 90-day, 12% interest-bearing
note dated August 31, 2017. On September 30, 2017, the entity discounted the note
with recourse at the Apex State Bank at 15%
However, the proceeds were not received until October 1, 2017. The discounting with
recourse is accounted for as a conditional sale with recognition of a contingent liability.
1. What is the amount received from the discounting of note receivable?
2. What is the loss on the note receivable discounting?
PROBLEM 8
On January 1, 2017, Ott Company sold goods to Fox Company. Fox signed a
noninterest-bearing note requiring payment of P600,000 annually for seven years. The
first payment was made on January 1, 2017. The prevailing rate of interest for this
type of note at the date of issuance was 10%.
PV of an ordinary annuity of 1 at 10% for 6 periods 4.36
PV of an ordinary annuity of 1 at 10% for 7 periods 4.87
1. What amount should be recorded as sales revenue in January 2017?
2. What is the carrying amount of the note receivable on January 1, 2017?
3. What is the interest income for 2017?
4. What is the carrying amount of the note receivable on December 31, 2017?
PROBLEM 9
Pangasinan Company is a dealer in equipment. On December 31, 2017, the entity sold
an equipment in exchange for a noninterest bearing note requiring five annual
payments of P500,000. The first payment was made on December 31, 2018.
The market interest for similar notes was 8%. The PV of 1 at 8% for 5 periods is .68,
and the PV of an ordinary annuity of 1 at 8% for 5 periods is 3.99.
1. On December 31, 2017, what is the carrying amount of the note receivable?
2. Interest income for 2018 is?
3. Carrying amount of note receivable on December 31, 2018