Practice Test 1.1 The correct answer is 'False'.

The correct answer is: Question 2

Ensure full and fair disclosure of information.  → Management, The International Accounting Standards Board (IASB) Conceptual Framework includes the concept of
prudence or conservatism as a desirable, but not required, quality of financial reporting information.
Formulate national policies and develop statistics. → Government and its agencies,
Plan and control operations of the enterprise.  → Management, The correct answer is 'False'.
Allocate resources through taxation policies implemented.  → Government and its agencies, Question 3
Sometimes, one enhancing qualitative characteristic may have to be diminished to maximize another
Determine whether they should hold, buy or sell.  → Potential shareholders, qualitative characteristic.
The correct answer is 'True'.
Determine whether the enterprise could pay the goods or services provided to them.  → Suppliers, Question 4
Lenders are interested in information that enables them to determine whether their loans and the interest in
Evaluate whether the enterprise has the ability to deliver the required goods and services.  → Customers,
these loans will be paid when due.
Assure safety and profitability of their holdings. → Present shareholders, The correct answer is 'True'.
Question 5
Answer the question "do we lend the money to the firm?" → Potential creditors, The providers of risk capital and their advisers are concerned with the risk inherent in and return provided by
their investment.
Bargain for higher wages and improved benefits.  → Employees
The correct answer is 'True'.
Practice Test 1.2 Question 6
The correct answer is: In the Conceptual Framework, qualitative characteristics are considered fundamental or enhancing.
Necessary to build an established body of concepts and objectives for solving new and emerging practical The correct answer is 'True'.
problems in financial reporting.  → Conceptual framework, Question 7
Applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed
Financial information possesses this attribute if it can be used as an input to processes employed by users to order.
forecast future outcomes.  → Predictive value, The correct answer is 'True'.
Question 8
Sound and generally accepted principles should be applied if the amount involved is significant when Employees and their representative groups are interested in information about the stability and profitability of
compared with the other elements of financial statements. → Materiality, the entity.
Increase (decrease) in net assets during the year after deducting contributions from owners and adding back The correct answer is 'True'.
distributions to owners.  → Income, Question 9
In case where there is conflict between the framework and PFRS, the requirement of the framework will prevail.
This concept separates financial information into time periods for reporting purposes.  → Accounting period, The correct answer is 'False'.
Question 10
The quality of information that allows users to perceive its significance.  → Relevance, The ingredients of faithful representation are completeness and neutrality.
Assumes that the accounting entity will have a long life. → Going concern, The correct answer is 'False'.
Question 11
Its primary role is to regulate the issuance and trading of securities by corporations to the general public.  → The framework applies to financial statements of business reporting enterprises both in the private sector and
Securities and Exchange Commission (SEC), in the public sector.
The correct answer is 'True'.
At present, the accredited professional organization of practicing certified public accountants in the Philippines Question 12
→ Philippine Institute of Certified Public Accountants (PICPA), The definitions of an asset and a liability identify their essential features but do not attempt to specify the
criteria that need to be met before they are recognized in the balance sheet.
This characteristic requires that information that may affect the decision or evaluation of the users should be
The correct answer is 'True'.
disclosed.  → Completeness,
Question 13
For the information to meet this qualitative characteristic, it must be complete, neutral and free from error.  → The Conceptual Framework for Financial Reporting is considered a PFRS.
Faithful representation, The correct answer is 'False'.
Question 14
The set of pronouncements that constitute the generally accepted accounting principles promulgated by the In assessing whether an item meets the definition of an asset, liability or equity, attention needs to be given to
International Standards Board.  → International Financial Reporting Standards, its underlying substance and economic reality and not merely its legal form.
The correct answer is 'True'.
This enhancing qualitative characteristic is achieved when entities use the same accounting methods from
Question 15
period to period.  → Comparability, The objective of financial reporting to business enterprises are based on the   need for conservative
The enterprise is separate from its owners and other entities.  → Entity concept, information. 

The primary users of information provided by financial accounting → External users

The correct answer is 'False'.
Practice Test 1.3 Question 16
The Conceptual Framework sets out the concepts that underlie the preparation but not the presentation of
financial statements.
Question 1 The correct answer is 'False'.
The implicit assumption in the Conceptual Framework is that information must be decision-useful to all potential Question 17
users of the financial reporting.
1
The objective of financial reporting in the Conceptual Framework for financial reporting is found in the third a. The goods are delivered.
level of the framework.
The correct answer is 'False'. b. The first installment is made.
c. The final installment is made.
Question 18
Government and its agencies have an interest in information about the continuance of an enterprise especially d. The substantial payment is made.
when they have long-term involvement or are dependent on the enterprise.
The correct answer is 'False'.
Question 19 The correct answer is:a
The underlying theme of the conceptual framework is comparability. Question 5
The correct answer is 'False'. What might a manager do during the last quarter of fiscal year if she wanted to improve current annual net
Question 20 income?
Changing the method of inventory valuation should be reported in the financial statements under verifiability.
a. Relax credit policies for customer.
b. Increase research and development activities.
The correct answer is 'False'.
Practice Test 1.4 c. Delay shipments to customers until after the end of the fiscal year.
d. Delay purchases from suppliers until after the end of the fiscal year.
Question 1
The conceptual framework includes a cost-benefit constraint. Which of the following best describes the cost- The correct answer is:a
benefit constraint?
Question 6
a. The benefits of the information must be greater than the costs of providing it. Which of the following is a current liability?
b. Financial information should be free from cost to users of the information. a. Preferred dividends in arrears.
c. Costs of providing financial information are not always evident or measurable, but must be b. A dividend payable in the form of additional shares of company’s own stock.
considered.
c. A cash dividend payable to preferred stockholders.
d. All of the choices are correct. 
The correct answer is:a d. All of these are current liabilities.
Question 2
X, Ltd., a large manufacturer of cosmetics, sells merchandise to Y Ltd., a retailer, which in turn sells the goods The correct answer is:c
to the public at large through its chain of retail outlets. Y Ltd. Purchases merchandise from X revenue Ltd., Question 7
under a consignment contract. When should revenue from the sale of merchandise to Y Ltd. be recognized by Limitations of the Income Statement include all of the following, except:
X Ltd.? a. Only actual amounts are reported in determining net income.
a. When goods are delivered to Y Ltd. b. Items that cannot be measured reliably are not reported.
b. When the goods are sold by Y Ltd. c. Income measurement involves judgment.
c. It will depend on the terms of delivery of the merchandise by X Ltd., to Y Ltd. (i.e. CIF[cost, d. Income numbers are affected by the accounting methods employed.
insurance, and freight] or FOB)
d. It will depend on the terms of payment between Y Ltd and X Ltd (i.e., cash or credit). The correct answer is:a
The correct answer is:b Question 8
Question 3 The accountant of John Company is preparing the Statement of Comprehensive Income and Statement of
Which statement is incorrect regarding information about a reporting entity’s financial performance? Financial Position at December 31, 2014. The January 1, 2014, merchandise inventory balance will appear:

a. That information helps users to understand the return that the entity has produced on its economic a. Only in the costs of goods section of the statement of comprehensive income.
resources. b. Only as an asset on the statement of financial position.
b. Information about the return the entity has produced provides an indication of how well management c. As a deduction in the cost of goods sold section of the statement of comprehensive income and as a
has discharged its responsibilities to make efficient and effective use of the reporting entity’s resources. current asset on the statement of financial position.
c. Information about the variability and components of that return is also important, especially in d. As an addition in the cost of goods sold section of the statement of comprehensive income and as a
assessing the uncertainty of future cash flows. current asset on the statement of financial position.
d. Information about a reporting entity’s past financial performance and how its management
discharged its responsibilities is indicative of the entity’s future returns on its economic resources. The correct answer is:a
The correct answer is:d Question 9
Question 4 Revenue from sale of goods shall be recognized when all of the conditions have been satisfied, except:
The term “layaway sales” applies to transactions where goods are delivered only when the buyer makes the a. The entity has transferred to the buyer the significant risks and rewards of ownership of the goods.
final payments in a series of installments. Revenue from such sales is generally recognized when:
2
b. The entity retains either continuing managerial involvement or effective control over the goods sold. c. The net present value of cash flows method.
c. The amount of revenue can be measured reliably. d. A percentage of completion basis.
d. It is probable that economic benefits will flow to the entity.
The correct answer is:a
Question 15
The correct answer is:b
Which of the following is (are) essential to the existence of an asset?
Question 10
A liability shall be classified as a current liability when it satisfies any of the following criteria, except:
a. Legal right.
a. It is expected to be settled in the entity’s normal operating cycle.
b. Physical form.
b. It is primarily held for the purpose of being traded.
c. Both a and b.
c. It is due to be settled within fifteen months after the balance sheet date.
d. Neither a nor b.
d. The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the
balance sheet date.  The correct answer is:d
Question 16
The correct answer is:c Retained earnings are a component of:
Question 11
The real accounting issue in revenue recognition is the: a. Reserves
a. The amount of income recognized. b. Other equity
b. Type of income recognized.
c. Contributed equity
c. Timing of the recognition.
d. Comprehensive income
d. Basis of income recognition.
The correct answer is:a
The correct answer is:c Question 17
Question 12 When the outcome of the transaction involving the rendering of services cannot be estimated reliably, the
The Statement of Financial Position shall classify one of these as a non-current asset: revenue is recognized:
a. Cash funds set aside for payment of equipment to be delivered a month after the reporting period. a. In reference to the stage of completion of the transaction.
b. Goods which are in the process of production for sale in the ordinary course of business. b. Only to the extent of costs incurred that are expected to be recoverable.
c. Debt and equity securities acquired principally for the purpose of generating profit from short-term c. Upon cash collection.
fluctuations in price or dealer’s margin.
d. Upon completion of the services to be rendered.
d. Amounts due from customers within a period of 12 to 18 months, extend within the usual credit term
of the enterprise. The correct answer is:b
Question 18
The correct answer is:a To meet the probability criterion, in relation to recognition of assets and liabilities, the expectation that future
Question 13 economic benefits will flow to  or from an entity must be:
ABC Inc. is a large manufacturer of machines. XYZ Ltd., a major customer of ABC, Inc. has placed an order for
a special machine for which it has given a deposit of P112,500 to ABC, Inc. The parties have agreed on a price a. Certain.
for the machine of P150,000. As per the terms of the sales agreement, it is an FOB (free on board) contract
and the title passes to the buyer when goods are loaded onto the ship at the port. When should the revenue be b. Virtually certain.
recognized by ABC, Inc.? c. Sufficiently certain.
a. When the customer orders the machine. d. Not uncertain.
b. When the deposit is received. The correct answer is:c
Question 19
c. When the machine is loaded on the port. Which statement is incorrect regarding information about the nature and amounts of a reporting entity’s economic resources and
claims?
d. When the machine has been received by the customer.
a. That information can help users to identify the reporting entity’s financial strengths and weaknesses.
The correct answer is:c
Question 14 b. That information can help users to assess the reporting entity’s liquidity and solvency, its needs for additional
So long as it is probable that the economic benefits will flow to the enterprise and the amount of revenue can financing and how successful it is likely to be in obtaining that financing.
be measured reliably, revenue from royalties should be recognized on: c. Information about priorities and payment requirements of existing claims helps users to predict how future cash
flows will be distributed among those with a claim against the reporting entity.
a. An accrual basis.
d. Information about economic resources and claims are reported in the Statement of Comprehensive Income. 
b. The cash basis of accounting.
The correct answer is:d

3
Question 20 d. auditing
An obligation that is contingent on the occurrence of a future event should be reported in the balance sheet as a liability if:
The correct answer is:Financial Accounting
a. The future event is likely to occur.
Question 5
b. The amount of the obligation can be reasonably estimated. Which of the following are underlying assumptions of financial statements? 
a.Relevance and Reliability
c. The occurrence of the future event is at least reasonably possible and the amount is known.
b.Financial capital maintenance and physical capital maintenance
d. The occurrence of the future event is probable and the amount can be reasonably estimated.
c.Accrual basis and going concern
The correct answer is:d
d.Prudence and conservatism
The correct answer is:Relevance and Reliability
Question 6
Quiz 1.1 Comparability is sometimes sacrificed for: 
a.conservatism
Question 1 b.objectivity
A primary objective of financial reporting is to: 
c.reliability
a.assist investors in predicting prospective cash flows
d.relevance
b.assist suppliers in determining an appropriate discount to offer a particular company
The correct answer is:relevance
c.assist banks to determine an appropriate interest rate for their commercial loans Question 7
Which of the following is not a qualitative characteristic of financial statements according to the Framework? 
d.assist investors in analyzing the economy a.Understandability
The correct answer is:assist investors in predicting prospective cash flows b.Comparability
Question 2
Choose the incorrect statement: c.Materiality
a.The objective of external financial statements is to communicate the economic benefits of completed
transactions and other events on the entity.  d.Relevance

b.Security analysts use information from financial statements and other sources to project future earnings.  The correct answer is:Materiality
Question 8
c.The assessment of earnings quality has become an exact science.  Choose the incorrect statement:
a.The primary function of the Financial Reporting Standards Council is to develop and enforce auditing
d.The practice of accounting requires considerable professional judgment.  standards. 
The correct answer is:The assessment of earnings quality has become an exact science.  b.The double-entry system of accounting has been used for centuries. 
c.Benefits provided by accounting procedures should exceed their cost. 

Question 3 d.The Securities and Exchange Commission (SEC) exerts influence on the development of accounting
Which of the following statements about International Accounting Standards is true?  records. 
A.International standards are enforceable world-wide, in order to allow for judgments regarding The correct answer is:The primary function of the Financial Reporting Standards Council is to develop and
international investments.  enforce auditing standards. 
b.Legal and psychological hurdles to achieving common reporting standards have largely been overcome. 
c.The IASC is able to enforce its standards by prohibiting the listing of companies which do not comply on Question 9
stock exchanges which sell internationally.  If accounting information is timely and has predictive and feedback value, then it can be characterized as: 
reliable
d.The International Accounting Standards Board (IASB) was established with the purpose of narrowing the
range of divergence in accounting standards used throughout the world.  relevant
The correct answer is:The International Accounting Standards Board (IASB) was established with the purpose qualitative
of narrowing the range of divergence in accounting standards used throughout the world. 
Question 4 verifiable
Which of the following areas within the accounting field has its main purpose serving the information needs of The correct answer is:relevant
parties outside the reporting firm?  Question 10
a.Managerial Accounting Critical thinking is most important in which of the following problem-solving steps? 
b.Tax Accounting recognizing a problem

c.Financial Accounting evaluating the alternatives

4
identifying alternative solutions Cash in checking account                      P   35,000
selecting a solution from among the alternatives Cash in money market account                    75,000
The correct answer is:evaluating the alternatives Treasury bill, purchased 11/1/2009, maturing 1/31/2010  350,000
Treasury bill, purchased 12/1/2009, maturing 3/31/2010  400,000
Tran’s policy is to treat as cash equivalents all highly liquid investments with a maturity of three months or less
when purchased. What amount should Trans report as cash and cash equivalents in its December 31, 2009,
balance sheet (statement of financial position)?

P460,000
P110,000
P385,000
Practice Test 2.1, Cash and Cash Equivalents
P860,000

Question 1 The correct answer is:P460,000

On January 1, 2002, Kyle Corporation established a petty cash fund of ₱400. On December 31, 2002, the petty Question 3
cash fund was examined and found to have receipts and documents for miscellaneous expenses amounting to Which of the following is not a basic characteristic of a system of cash control?
₱364. In addition, there was cash amounting to ₱44. What entry would be required to record replenishment of
the petty cash fund on December 31, 2002?
Combined responsibility for handling and recording cash
Internal audits at irregular intervals
Miscellaneous Expense.........    364
Use of a voucher system
    Cash Short and Over.........                 8
    Petty Cash..................                      356
Daily deposit of all cash received
The correct answer is:Combined responsibility for handling and recording cash
Miscellaneous Expense.........    356 Question 4
What is the proper accounting treatment for a stale check?
   Cash Short and Over.........                           8
   Cash in bank                                    364 Revert back to cash and a credit to gain.
Ignored
Miscellaneous Expense.........    364 Revert back to cash and accounts payable.
The correct answers are:
    Cash Short and Over.........                 8 Revert back to cash and accounts payable.,
    Cash in bank                                   356 Revert back to cash and a credit to gain.
Question 5
As of December 31, 20x1, the petty cash fund of TUMULT COMMOTION Co. with a general leger balance of
Petty Cash....................    364 P15,000 comprises the following:
                Cash Short and Over.........                  8 Coins and currencies                                                                               P 2,550
   Cash in bank                                    356 Petty cash vouchers:
Gasoline for delivery equipment                                             P3,000
The correct answer is: Medical supplies for employees                                                2,040     5,040
Miscellaneous Expense.........    364
IOU’s:
    Cash Short and Over.........                 8
Advances to employees                                                                          2,220
    Cash in bank                                   356
A sheet of paper with names of several employees
Question 2    together with contribution to bereaved employee,
Trans Co. had the following balances at December 31, 2009:
   attached is a currency of                                                                      2,400

5
Checks:
660,000
Check drawn to the order of the petty cash custodian                           3,000
810,000 
Personal check drawn by the petty cash custodian                                 2,400
900,000
 The entry to record the replenishment of the petty cash fund includes 960,000

The correct answer is:660,000

A debit to cash short/overage account of P2,190 and a credit to cash in bank of P9,450. Question 8
Which of the following would not be classified as cash?
A credit to cash short/overage account of P810 and a credit to cash of P12,450. 
Postdated checks
A debit to cash short/overage account of P810 and a credit to petty cash fund of P12,450.
Cashiers' checks
A debit to cash short/overage account of P2,190 and a credit to cash on hand of P9,450.
Travelers' checks
The correct answer is:A debit to cash short/overage account of P2,190 and a credit to cash in bank of P9,450.
Personal checks
The correct answer is:Postdated checks

Question 9
The principal purpose of a voucher system is to provide assurance that

Question 6 all cash disbursements are approved before a check is issued.

On December 31, 2009, West Company had the following cash balances:
all purchase invoices are supported by debit memoranda.
Cash in banks               
P1,800,000 all cash receipts are recorded in the accounting records.

Petty cash funds (all funds were reimbursed on 12/31/09)         50,000 all cash receipts are deposited intact in the bank.

Cash in banks includes P600,000 of compensating balances against short-term borrowing arrangements at
December 31, 2009. The compensating balances are not legally restricted as to withdrawal by West. In the The correct answer is:all cash disbursements are approved before a check is issued.
current assets section of West's December 31, 2009, balance sheet (statement of financial position), what total Question 10
amount should be reported as cash? The amount reported as "Cash" on a company's statement of financial position normally should exclude
petty cash.
P1,800,000
postdated checks that are payable to the company.
P1,250,000
cash in a payroll account.
P1,200,000
undelivered checks written and signed by the company.
P1,850,000
The correct answer is:postdated checks that are payable to the company.
The correct answer is:P1,850,000 Practice Test 2.2, Bank Reconciliation
Question 7
The cash balance of CAPSIZE OVERTURN Co. comprises the following:
Question 1
Cash on hand                                300,000 These are deductions made by the bank to the depositor’s bank account but not yet recorded by the depositor.
Cash in bank – savings – BPI                      600,000

Cash in bank – current – BPI                     (240,000) Deposits in transit (DIT) 

Cash in bank – deposit in escrow – Metrobank          300,000 Debit memos (DM) 

Cash in bank – current – Metrobank              ( 60,000) Credit memos (CM) 
Outstanding checks (OC)
Cash in bank – current – BDO                        ( 90,000)

Total                              810,000 The correct answer is:Debit memos (DM) 

Question 2
Additional information: Which of the following is added to the cash balance per bank statement when preparing a bank reconciliation
statement?
• Cash on hand includes undeposited collections of P60,000.
Credit memos (CM) 
• The cash in bank – savings maintained at BPI includes a P150,000 compensating balance which is not restricted. Debit memos (DM) 
What amount of cash is reported in the financial statements? Outstanding checks (OC)

6
Deposits in transit (DIT)  Question 9
It is a report that is prepared for the purpose of bringing the balances of cash per records and per bank
The correct answer is:Deposits in transit (DIT) 
Question 3 statement into agreement.
These are checks drawn and released to payees but are not yet encashed with the bank.
Outstanding checks (OC)

Debit memos (DM) 

Check Disbursement Voucher
Credit memos (CM) 
Deposits in transit (DIT)  Bank reconciliation
The correct answer is:Outstanding checks (OC) Bank deposit slip
Question 4
These are deposits made but not yet credited by the bank to the depositor’s bank account. Bank statement
Debit memos (DM)  The correct answer is:Bank reconciliation
Outstanding checks (OC) Question 10
These are additions made by the bank to the depositor’s bank account but not yet recorded by the depositor.
Credit memos (CM) 
Deposits in transit (DIT) 
Debit memos (DM) 
The correct answer is:Deposits in transit (DIT) 
Question 5 Outstanding checks (OC)
Which of the following is added to the cash balance per books when preparing a bank reconciliation statement?
Credit memos (CM) 
Debit memos (DM) 
Deposits in transit (DIT) 

Outstanding checks (OC) The correct answer is: Credit memos (CM) 
Quiz 2.1 Cash and Cash Equivalents, Petty Cash Fund, Bank Reconciliation
Credit memos (CM)  Question 1
Deposits in transit (DIT)  Cash control systems are the methods and procedures used to: 
The correct answer is: Credit memos (CM)  ensure that excess cash does not exist. 
Question 6 ensure the safeguarding of cash. 
Which of the following is not a debit memo?
ensure that current obligations are met. 
Automatic debits representing payments of bills by the bank on behalf of the depositor ensure that unused cash is invested. 
Direct deposits of customers to the depositor’s account The correct answer is:ensure the safeguarding of cash. 
Question 2
No sufficient funds checks (NSF) Which of the following is classified as a current liability on the Statement of Financial Position? 
postdated checks
Bank service charges 
The correct answer is:Direct deposits of customers to the depositor’s account customer nonsufficient fund checks
Question 7 travel advances
Which of the following represents a debit memo?
bank overdrafts

Interest income earned by the deposit. The correct answer is:bank overdrafts
Question 3
Collections made by the bank on behalf of the depositor. The entry to replenish the petty cash fund for P1,000 of various minor expenditures would include a: 
credit to petty cash
Interest expense on a loan that is directly deducted from the depositor’s account.
credit to cash
Loan proceeds directly credited or added by the bank to the depositor’s account.
debit to petty cash
The correct answer is:Interest expense on a loan that is directly deducted from the depositor’s account.
Question 8 debit to cash
As an internal control, bank reconciliation statements are usually prepared  The correct answer is:credit to cash
Question 4
All of the following are necessary components of internal control over cash except:
on  a monthly basis. a cash reserve
the daily deposit of all receipts in the company's bank account
annually every year-end.
a petty cash system
on a daily basis.
whenever the accountant feels like it. a bank reconciliation

The correct answer is:on  a monthly basis. The correct answer is: a cash reserve
Question 5

7
Which of the following statements concerning compensating balance agreements is not true?  Expense vouchers - 829.80
they reduce the amount of cash available to the borrower
Advance to salesman - 200.00
they always involve legal restrictions on the cash received
IOU from employee - 300.00
they must be disclosed in the financial statements footnotes

they increase the effective interest rate to the borrower In the entry to replenish the fund, what amount should be debited to Cash Short or Over? 

The correct answer is:they always involve legal restrictions on the cash received
Question 6 300
Carroty Street Market's accountant is preparing its October bank reconciliation and has collected the following data:
13.60
                                                                                    Per Books                              Per Bank  
500
Oct. 1, balance                                                             P 11,600                               P 10,000
0
Oct. deposits                                                                    24,600                                 21,200

Oct. checks                                                                       27,800                                 29,000 The correct answer is:0

Question 10
Note collected (includes 10% interest)                                  --                                     4,400 Which of the following procedures is not consistent with good internal control of cash receipts? 
Assignment of cash custody and reconciliation to the same individual. 
Oct. service charge                                                                --                                          20

Oct. 31 balance                                                                   8,400                                  6,580 Separate responsibilities for cash-handling and cash-recording functions. 
Continuous and close supervision of all cash-handling and cash-recording functions. 
Assignment of responsibilities to ensure a continuous and uninterrupted flow of cash from initial receipt to
Additionally, deposits in transit and outstanding checks from September's reconciliation were P4,400 and P2,800, respectively. deposit in an authorized bank account. 
The correct balance for cash at October 31 should be: 
The correct answer is:Assignment of cash custody and reconciliation to the same individual. 
10,960
Question 11
12,780 Compensating balance agreements that do not legally restrict the amount of funds shown on the Statement of
13,9880 Financial Position should:
be reported in the current asset section. 
11,180=
be reported in the other asset section. 
Your answer is incorrect.The correct answer is: 12,780
be reported in the footnotes
be reported in the L-T investment section
The correct answer is:be reported in the footnotes
Question 7
Which of the following reconciling items would require an adjusting journal entry on the company's books? 
non-sufficient funds checks
outstanding checks
cash on hand
Question 12
deposits in transit Which of the following is a key element of internal control over cash payments?  
periodically reconciling the cash account balance on the company's books to the bank statement balance
The correct answer is:non-sufficient funds checks
Question 8 authorizing and verifying that all cash received is recorded daily
Midwest Inc. reported a balance of P14,300 in its cash account at the end of the month. There were P12,000 of
deposits in transit and P11,500 of checks outstanding. The bank statement showed a balance of P15,000. making daily bank deposits
Service charges of P600, and the collection of a note plus interest. The note had a face value of P1,500. How
requiring that all petty cash vouchers be approved by two signatures
much interest did the bank collect for the company? 
1,800 The correct answer is:periodically reconciling the cash account balance on the company's books to the bank
statement balance
300
Question 13
2,400
Senorita, Inc. uses a four-column bank reconciliation. The bank reconciliation for March shows outstanding
1,200 checks for P300. During April, the company wrote checks totaling P23,600. The bank statement for April shows
P23,010 of checks clearing the company's account. The amount of outstanding checks on the April bank
The correct answer is: 300 reconciliation must be: 
Question 9 1,200
Crunchy Co. established a P3,000 petty cash fund. You found the following items in the fund: 
600
Cash and currency - 1,683.80

8
300 Postage expense                    45

890 Supplies expense                   145

Parking expense                     30

The correct answer is:890
Question 14 Cash short                              30
Which is not a key element of internal control over cash receipts? 
immediate counting by the person opening the mail or using the cash register                            Cash                              250

Postage expense                    45
daily recording of all cash receipts in the accounting records
Supplies expense                   145
daily deposit intact
Parking expense                     30
daily entry in a voucher register 
The correct answer is: daily entry in a voucher register                             Cash                              220
Question 15 The correct answer is:
Del Co. prepares a four-column bank reconciliation. Check No. 859 was written for P5,670 on hte books, but Postage expense                    45
the check was written and cleared the bank for the correct amount, P6,570. The correct treatment on the
reconciliation would be:  Supplies expense                   145

Parking expense                     30

on the bank side, deduct P900 from payments and add P900 to ending balance Cash short                              30
on the book side, deduct P900 from payments and add P900 to ending balance                            Cash                              250
on the book side, add P900 to payments and deduct P900 from ending balance Question 18
When a company's bookkeeper started to prepare the monthly bank reconciliation, the cash account showed a balance of
on the bank side, add P900 to receipts and add P900 to ending balance P528,600. At the end of the month, the following information was available from the company records and the monthly bank
statement: 
The correct answer is:on the book side, add P900 to payments and deduct P900 from ending balance
Question 16 (1) Customer NSF checks listed on the bank statement - 40,800
Vital Heating Co. uses a four-column bank reconciliation. The bank reconciliation for May shows P3,000 of (2) Bank service charges listed on the bank statement - 2,400
deposits in transit. The bank statement for June reveals that the bank recorded receipts totaling P20,400
(P4,200 of which was a note collected from a Vital Heating customer). During June, Vital recorded P18,000 in (3) Checks outstanding at the end of the month, determined by the bookkeeper - 178,000
deposits. The amount of deposits outstanding for June's reconciliation must be:  (4) A deposit for P45,000 was recorded incorrectly on the bank statement as - 54,000
1,800
4,800 (5) The company wrote a check for P1,700 (the correct amount) but recorded it in the cash account as - 7,100

2,400 (6) Customer defaults on accounts receivable were determined by the bookkeeper to be - 12,600

600 The correct cash balance shown on the bank reconciliation should be: 

The correct answer is:4,800 490,800

Question 17 561,600
A company had a petty cash account with a stated balance of P300 on January 1, 2014. Petty cash expenses
581,400
for 2014 were as follows: postage, P45; supplies used, P145; parking fees, P30. At the end of 2014, the auditor
counted the money in the petty cash fund and found P50 cash on hand. The December 31, 2014, entry 572,400
regarding the petty cash fund should be: 
The correct answer is:572,400
Postage expense                    45
Question 19
Supplies expense                   145 In reconciling the bank balance with the book cash balance, which of the following would not cause the bank balance shown on
the bank statement to be lower than the unadjusted book balance? 
Parking expense                     30 Cash on hand at the company

Deposits in transit
Cash short                              30
NSF checks from a customer, as reported on the bank statement
                           Cash                              30 Interest credited to the account by the bank
                            Petty cash                     220 The correct answer is:Interest credited to the account by the bank
Postage expense                    45

Supplies expense                   145

Parking expense                     30 Question 20

In order to be classified as a cash equivalent, an investment must have a maturity date of: 
Cash short                              30 three to six months. 
                                Petty cash                     250 three months or less.

9
six to twelve months.  Question 8
Identification. Indicate how the following item should be presented on the company’s statement of financial
less than six months. position.
The correct answer is:three months or less.
Practice Test 3.1, Receivables Dishonored customer’s note 

Question 1 The correct answer is: Accounts Receivable

Identification. Indicate how the following item should be presented on the company’s statement of financial Question 9
position. Identification. Indicate how the following item should be presented on the company’s statement of financial
position.
Customers’ accounts with credit balances resulting from sales returns subsequent to full collection of account
Claims against consignees for goods shipped to the latter and already sold at December 31

The correct answer is: Customers’ Accounts with Credit Balances

Question 2 The correct answer is: Accounts Receivable
Identification. Indicate how the following item should be presented on the company’s statement of financial Question 10
position. Identification. Indicate how the following item should be presented on the company’s statement of financial
position.
Expense receipts for advances made for freight charge for the account of a supplier 
Assigned accounts receivable 

The correct answer is: Advances to Suppliers The correct answer is: Accounts Receivable
Question 3 Question 11
Identification. Indicate how the following item should be presented on the company’s statement of financial Identification. Indicate how the following item should be presented on the company’s statement of financial
position. position.

Deposit on purchase of undelivered merchandise  Income tax refunds, approved by the BIR 

The correct answer is: Advances to Suppliers The correct answer is: Claims for Income Tax Refund
Question 4 Question 12
Identification. Indicate how the following item should be presented on the company’s statement of financial Identification. Indicate how the following item should be presented on the company’s statement of financial
position. position.

Receivables arising from subscription to the company’s share capital  Claims from employees representing cash advances 

The correct answer is: Subscriptions Receivable The correct answer is: Receivables from Employees
Question 5 Question 13
Identification. Indicate how the following item should be presented on the company’s statement of financial Identification. Indicate how the following item should be presented on the company’s statement of financial
position. position.

Claims from employees representing selling price of goods sold under normal credit terms  Receivable arising from the sale of equipment

The correct answer is: Accounts Receivable The correct answer is: Other Non-Trade Receivables
Question 6 Question 14
Identification. Indicate how the following item should be presented on the company’s statement of financial Identification. Indicate how the following item should be presented on the company’s statement of financial
position. position.

Claims against consignees for goods shipped to the latter, goods are still unsold at the reporting date  Customers’ accounts on which postdated checks are held

The correct answer is: Cost of merchandise The correct answer is: Accounts Receivable
Question 7 Question 15
Identification. Indicate how the following item should be presented on the company’s statement of financial Identification. Indicate how the following item should be presented on the company’s statement of financial
position. position.

Customers’ accounts ascertained to be uncontrollable  Creditors’ accounts with debit balances resulting from overpayment 

The correct answer is: Not recognized anymore The correct answer is: Suppliers’ Accounts with Debit Balances

10
Question 16 Allowance for Doubtful Accounts       9,000
Identification. Indicate how the following item should be presented on the company’s statement of financial
position.                   441,000
During 2016, transactions relating to the accounts were as follows:
Claims from customers for merchandise sold 
What is the journal entry to record this transaction? 
c. Credit memo issued to customers for sales returns, P60,000.
The correct answer is: Accounts Receivable
The correct answer is: Debit Sales Returns 60,000 and Credit Accounts Receivable 60,000
Question 4
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
Practice Test 3.2, Accounts Receivable December 31, 2015 as follows:
Accounts Receivable-trade P450,000
Question 1
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at Allowance for Doubtful Accounts       9,000
December 31, 2015 as follows:
                  441,000
Accounts Receivable-trade P450,000
During 2016, transactions relating to the accounts were as follows:
Allowance for Doubtful Accounts       9,000
What is the journal entry to record this transaction? 
                  441,000
d. Customer’s accounts of P20,000 were ascertained worthless and written off.
The correct answer is: Debit Allowance for Doubtful Accounts Expense 20,000 and Credit Accounts Receivable
20,000
Question 5
During 2016, transactions relating to the accounts were as follows: The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
December 31, 2015 as follows:
What is the journal entry to record this transaction? 
Accounts Receivable-trade P450,000
a. Sales on account, P4,800,000
Allowance for Doubtful Accounts       9,000
The correct answer is: Debit Accounts Receivable 4,800,000 and Credit Sales 4,800,000
Question 2                   441,000
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
December 31, 2015 as follows: During 2016, transactions relating to the accounts were as follows:

Accounts Receivable-trade P450,000 What is the journal entry to record this transaction? 

Allowance for Doubtful Accounts       9,000 e. Recovered P5,000 of accounts written off prior to 2016.

                  441,000         Indicate the journal entry to record write-off. 

During 2016, transactions relating to the accounts were as follows: The correct answer is: Debit Accounts Receivable 5,000 and Credit Allowance for Doubtful Accounts Expense
5,000
What is the journal entry to record this transaction?  Question 6
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
b. Cash received from the collection of current receivable totaled P3,920,000 after discounts of
December 31, 2015 as follows:
P80,000 were allowed for prompt payment.
Accounts Receivable-trade P450,000
The correct answer is: Debit Cash 3,920,000 Debit Sales Discounts 80,000 and Credit Accounts Receivable
4,000,000 Allowance for Doubtful Accounts       9,000
                  441,000
During 2016, transactions relating to the accounts were as follows:
What is the journal entry to record this transaction? 
e. Recovered P5,000 of accounts written off prior to 2016.

Question 3         Indicate the journal entry to record collection of previously written off accounts receivable. 
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at The correct answer is: Debit Cash 5,000 and Credit Accounts Receivable 5,000
December 31, 2015 as follows: Question 7
Accounts Receivable-trade P450,000

11
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
December 31, 2015 as follows: Question 10
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
Accounts Receivable-trade P450,000 December 31, 2015 as follows:
Allowance for Doubtful Accounts       9,000 Accounts Receivable-trade P450,000
                  441,000 Allowance for Doubtful Accounts       9,000
During 2016, transactions relating to the accounts were as follows:                   441,000
What is the journal entry to record this transaction?  During 2016, transactions relating to the accounts were as follows:
f. Received a 90-day, 12% note for P25,000 from a customer on an overdue account. What is the journal entry to record this transaction? 
The correct answer is: Debit Notes Receivable 25,000 and Credit Accounts Receivable 25,000 g. Accounts receivable of P700,000 have been pledged to a local bank on a loan of P400,000.
Question 8 Collections of P150,000 were made on these receivables (not included in the collections previously
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at given) and applied as partial payment to the loan. 
December 31, 2015 as follows:
Accounts Receivable-trade P450,000        Indicate the journal entry to record partial payment to loan, P150,000. 

Allowance for Doubtful Accounts       9,000

The correct answer is: Debit Notes Payable Bank 150,000 and Credit Cash 150,000
                  441,000 Question 11
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
During 2016, transactions relating to the accounts were as follows: December 31, 2015 as follows:
What is the journal entry to record this transaction?  Accounts Receivable-trade P450,000
g. Accounts receivable of P700,000 have been pledged to a local bank on a loan of P400,000. Allowance for Doubtful Accounts       9,000
Collections of P150,000 were made on these receivables (not included in the collections previously
given) and applied as partial payment to the loan.                    441,000

       Indicate the journal entry to record accounts receivable pledged to a local bank;  During 2016, transactions relating to the accounts were as follows:

The correct answer is: Debit Cash 400,000 and Credit Notes Payable Bank 400,000 What is the journal entry to record this transaction? 
h. Based on an assessment of the impairment of receivables, it is estimated that allowance for
Question 9 uncollectible accounts should be P59,000 at December 31.
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at Allowance for DAE, before adjustment                     9,000
December 31, 2015 as follows:
Accounts written off                                 
Accounts Receivable-trade P450,000 (20,000)
Allowance for Doubtful Accounts       9,000 Recovery of accounts written off prior to 2016                     5,000
                  441,000 Doubtful Accounts Expense (adjustment)                           65,000
During 2016, transactions relating to the accounts were as follows: Required Allowance for DAE, after adjustment                           59,000
What is the journal entry to record this transaction?   
g. Accounts receivable of P700,000 have been pledged to a local bank on a loan of P400,000.
Collections of P150,000 were made on these receivables (not included in the collections previously        Indicate the journal entry to record the adjustment.  
given) and applied as partial payment to the loan.  The correct answer is: Debit Doubtful Accounts Expense 65,000 and Credit Allowance for Doubtful Accounts
Expense 65,000
       Indicate the journal entry to record collections of 150,000; 
Question 12
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at
The correct answer is: Debit Cash 150,000 and Credit Accounts Receivable 150,000 December 31, 2015 as follows:
Accounts Receivable-trade P450,000
Allowance for Doubtful Accounts       9,000
                  441,000
During 2016, transactions relating to the accounts were as follows:

12
What is the journal entry to record this transaction?  on an account written off in 2000. Sales for the year 2002 totaled ₱620,000. All sales were on account.
i. Recorded the accrued interest on the note in (f). The note was dated December 1, 2015.
       Indicate the journal entry to record accrued interest.    Theamount collected from customers on accounts receivable during 2002, including recoveries, was
The correct answer is: 578000
The correct answer is: Debit Interest Receivable 250 and Credit Interest Income 250
Question 13 Question 3
The statement of financial position of Toyota Products, Inc. shows the accounts receivable balance at The following information is from the records of Prosser, Inc. for the year ended December 31, 2002.
December 31, 2015 as follows: Allowance for Doubtful Accounts, January 1, 2002 .. ₱    6,000 (cr)
Accounts Receivable-trade P450,000 Sales, 2002                                                                      2,920,000
Allowance for Doubtful Accounts       9,000 Sales Returns and Allowances, 2002                            32,000
                  441,000 If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts expense
Based on the items affecting accounts receivable and allowance for doubtful accounts expense, how for 2002 is
much is the amortized cost of the accounts receivable at December 31, 2016?  (2,920,000 – 32,000) x 1% = 28,880
The correct answer is: 936,000 The correct answer is: 28880
Practice Test 3.3, Accounts Receivable Question 4
Based on the aging of its accounts receivable at December 31, Pribob Company determined that the net
Question 1 realizable value of the receivables at that date is ₱760,000. Additional information is as follows:
The aging method of estimating doubtful accounts is a variation of the percentage of Accounts Receivable at December 31                                ₱880,000
ending receivables method.
Question 2 Allowance for Doubtful Accounts at January 1                         128,000 (cr)
The entry to write off an uncollectible account under the allowance method is a debit to Doubtful Accounts
Expense and a credit to Accounts Receivable.F Accounts written off as uncollectible during the year                88,000
Question 3 Pribob's doubtful accounts expense for the year ended December (31 is
The use of the direct write-off method is acceptable under generally accepted accounting principles.F
Question 4 The correct answer is: 80000
Doubtful accounts expense is normally reported as a deduction from sales in the income statement.F Question 5
Question 5 At January 1, 20x1, Judy Co. had a credit balance of ₱260,000 in its allowance for uncollectible accounts.
The method of estimating uncollectible accounts expense based on the accounts receivable balance Based on past experience, 2% of Judy 's credit sales have been uncollectible. During 20x1, Judy wrote off
emphasizes the determination of the net realizable value of the receivables. ₱325,000 of uncollectible accounts. Credit sales for 20x1 were ₱9,000,000. In its December 31, 20x1, balance
Question 6 sheet, what amount should Judy report as allowance for uncollectible accounts?
Sales discounts are normally reported as selling expenses.F 260K + (2% x 9M) – 325K = 115,000
Question 7 The correct answer is: 115000
The direct write-off method for uncollectible accounts does not provide for the matching of current revenues Question 6
with related expenses. Richards Company uses the allowance method of accounting for bad debts. The following summary schedule
Question 8 was prepared from an aging of accounts receivable outstanding on December 31 of the current year.
The "list" sales price less any trade discount is the invoice amount.
Question 9
When estimating collectability based on an analysis of the accounts receivable balance, any existing balance in
the allowance for doubtful accounts is ignored.F
Question 10 The following additional information is available for the current year:
Accounts receivable are to be reported at their net realizable value.
Net credit sales for the year                                           ₱4,000,000
Practice Test 3.4, Accounts Receivable
Allowance for Doubtful Accounts:

Question 1 Balance, January 1                                                                45,000 (cr)

Based on its past collection experience, Ace Company provides for bad debts at the rate of 2 percent of net
Balance before adjustment, December 31                        2,000(dr)
credit sales. On January 1, 2002, the allowance for doubtful accounts credit balance was ₱10,000. During
2002, Ace wrote off ₱18,000 of uncollectible receivables and recovered ₱5,000 on accounts written off in prior If Richards determines bad debt expense using 1.5 percent of net credit sales, the net realizable value of
years. If net credit sales for 1999 totaled ₱1,000,000, the doubtful accounts expense for 2002 should be accounts receivable on the December 31 balance sheet will be
(1,000,000 x 2%) = 20,000
The correct answer is: 20000 The correct answer is: 742000
Question 7
Question 2 Maple Company provides for doubtful accounts expense at the rate of 3 percent of credit sales. The following
Gray Company had an accounts receivable balance of ₱50,000 on December 31, 2001, and ₱75,000 on data are available for last year:
December 31, 2002. The company wrote off ₱20,000 of accounts receivable during 2002, and collected ₱3,000

13
Allowance for Doubtful Accounts, January 1                                          ₱   54,000 (cr) The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the
substance of the transaction.
Accounts written off as uncollectible during the   year                               60,000
The receivables are used as collateral for a promissory note issued to the factor by the owner of
Collection of accounts written off in prior years . the receivables.
(customer credit was re-established)                                                        15,000 The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables.
Credit sales, year-ended December 31                                                   3,000,000 The correct answer is:
The allowance for doubtful accounts balance at December 31, after adjusting entries, should be The receivables are used as collateral for a promissory note issued to the factor by the owner of
the receivables.
[54,000 – 60,000 + 15,000 + (3,000,000 x 3%)] = 99,000
The correct answer is: 99000 Question 2
Question 8 A higher interest rate results to
On the December 31, 20x6, balance sheet of Esther Co., the current receivables consisted of the following: increased amount of present value.
At December 31, 20x6, the correct total of Esther's current net receivables was shorter accountant.
(93,000 – 2,000 + 3,000) = 94,000 decreased amount of present value.
The correct answer is: 94000
Question 9 same amount of present value.
Gekko, Inc. reported the following balances (after adjustment) at the end of 2002 and 2001.
  12/31/200 12/31/200 The correct answer is:increased amount of present value.
2 1 Question 3
What factor should you use if you want to determine the value now of a ₱1,000 payment due in three years’
Total accounts receivable                      ₱105,000 ₱96,000 time?
 the following factors would show the largest value for an interest rate of 12% for six periods?
Net accounts receivable   102,000  94,500 Future value of 1 
During 2002, Gekko wrote off customer accounts totaling ₱3,200 and collected ₱800 on accounts written off in Present value of 1
previous years. Gekko's doubtful accounts expense for the year ending December 31, 2002 is
Present value of an annuity due of 1
The correct answer is: 3900
Question 10 Present value of an ordinary annuity of 1
An analysis and aging of the accounts receivable of Shriner Company at December 31 revealed the following
data: The correct answer is:Present value of 1
Question 4
Accounts Receivable                                                             ₱450,000 What factor should you use for a ₱1,000 note receivable that is collectible in five annual installments of ₱200
starting one year hence?
Allowance for Doubtful Accounts (before adjustment)  25,000 (cr) Present value of an annuity due of 1
Required ending balance of allowance                                32,000 (cr) Present value of an ordinary annuity of 1
The net realizable value of the accounts receivable at December 31 should be Any of these
(450,000 – 32,000) = 418,000  Present value of 1
The correct answer is: 418000
The correct answer is:Present value of an ordinary annuity of 1
Practice Test 3.5, Notes Receivable Question 5
The balance in Accounts Receivable is not reduced in recording which of the following types of financing
arrangements?
Question 1 Assignment of specific accounts receivable
Which of the following is a method of generating cash from accounts receivable?
Factoring of accounts receivable
Assignment Factoring
General assignment (pledge) of accounts receivable
a.         Yes             No
Transfer of accounts receivable without recourse
b.         Yes             Yes
The correct answer is:General assignment (pledge) of accounts receivable
c.         No             Yes Question 6
d.         No              No A higher interest rate results to
decreased amount of present value.

The financing cost (interest expense) should be recognized ratably over the collection period of same amount of present value.
the receivables. Answer cannot be determined due to insufficient data

14
increased amount of present value. The correct answer is:The factor assumes the risk of collectability and absorbs any credit losses in collecting
the receivables.
The correct answer is:decreased amount of present value. Question 11
Question 7 Which of the following factors would show the largest value for an interest rate of 12% for six periods?
A 180-day, 12 percent interest-bearing note receivable is sold to a bank after being held for 45 days. The Present value of an ordinary annuity of 1
proceeds are calculated using a 15 percent interest rate. The note receivable has been
Present value of an annuity due of 1
            Discounted                 Pledged
Answer cannot be determined
a.        Yes                                 Yes
Present value of 1
b.        Yes                                  No
The correct answer is:Answer cannot be determined
c.         No                                 Yes
d.         No                                  No

The correct answer is:b Question 12

Question 8 Which of the following may result to the derecognition of a receivable?
Which of the following is a method of generating cash from accounts receivable? The receivable is impaired.

Assignment Factoring The receivable is transferred and the transferor retains control over the transferred receivable.

a.         Yes             No The contractual rights to the cash flows from the receivable expire.

b.         Yes             Yes a and c.

c.         No             Yes The correct answer is:a and c.

Question 13
d.         No              No Which of the following results to the smallest value?
Present value of 1 @12%, n=5

Face amount less the Discount Present value of an annuity due of 1 @12%, n=5

Present value of 1 @14%, n=5

Maturity value multiplied by the Discount
Present value of an ordinary annuity of 1 @12%, n=5
Maturity value less the Discount
The correct answer is:Present value of 1 @14%, n=5
Maturity value multiplied by the Discount rate multiplied by the Discount period. Question 14
The present value of 1 for a period of zero equals
BONUS QUESTION Error!
The correct answers are:all
Question 9 Answer depends on the interest rate
A 90-day, 15 percent interest-bearing note receivable was immediately discounted at a bank at 12 percent. The 1
proceeds received from the bank upon discounting would be the
face value less the discount at 12 percent. 0

maturity value less the discount at 15 percent. The correct answer is:1
Question 15
maturity value less the discount at 12 percent. Which of the following is most likely not a condition before a transfer of receivables is accounted for as a sale?
The transferor does not maintain effective control over the assets through an agreement to repurchase the assets before their
face value less the discount at 15 percent. maturity.

The transferee has the right to pledge or exchange the transferred assets.
The correct answer is:maturity value less the discount at 12 percent.
Question 10 The transferred assets have been isolated from the transferor.
Which of the following is true when accounts receivable are factored without recourse?
The financing cost (interest expense) should be recognized ratably over the collection period of The transferor's obligation under the recourse provisions can be reasonably estimated.
the receivables. The correct answer is:The transferor's obligation under the recourse provisions can be reasonably estimated.
Question 16
The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables. The entry to record a note receivable discounted with a bank most likely includes
Debiting cash equal to the face amount of the note
The receivables are used as collateral for a promissory note issued to the factor by the owner of
the receivables. Crediting note receivable equal to the maturity value of the note

The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the Crediting note receivable equal to the face amount of the note
substance of the transaction.
Debiting cash equal to the maturity value of the note

The correct answer is:Crediting note receivable equal to the face amount of the note

15
Question 17 12/31/20x1 2,000,000 728,964 1,271,036 4,803,663
Multiplying a lump sum future amount by a Present Value of 1 factor results to
Future amount. 12/31/20x2 2,000,000 576,440 1,423,560 3,380,102
Present value of 1. 12/31/20x3 2,000,000 405,612 1,594,388 1,785,714
Present value. 12/31/20x4 2,000,000 214,286 1,785,714 0
Future value of 1.
The correct answer is: 1,423,560
The correct answer is:Present value.
Question 18
What factor should you use for a ₱2,000 note receivable that is collectible in full after five years?
Any of these

Present value of an ordinary annuity of 1

Present value of 1

Present value of an annuity due of 1

The correct answer is:Present value of 1

Question 19
When the accounts receivable of a company are sold outright to a company that normally buys accounts
receivable of other companies without recourse, the accounts receivable have been
Question 2
transferred with recourse.
On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱20,000,000 and
assigned. 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
pledged.
December 31 thereafter. The prevailing rate of interest for this type of note is 12%.
factored.
1. How much is the interest income in 20x1?
The correct answer is:factored.
Question 20 678,334 
Present value is 728,946   
all of these.
728,964   
the value now of a future amount. 704,236

the amount that must be invested now to produce a known future value. Initial measurement: (8M ÷ 4) x PV ordinary annuity of 1 @12%, n=4 = 6,074,699 
always smaller than the future value. Subsequent measurement:
Interest
The correct answer is:all of these. Date Collections Amortization Present value
income
Practice Test 3.6, Notes Receivable
1/1/20x1 6,074,699
Question 1 12/31/20x1 2,000,000 728,964 1,271,036 4,803,663
On January 1, 20x1, ABC 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 12/31/20x2 2,000,000 576,440 1,423,560 3,380,102
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%. 12/31/20x3 2,000,000 405,612 1,594,388 1,785,714

2. How much is the current portion of the receivable on December 31, 20x1? 12/31/20x4 2,000,000 214,286 1,785,714 0
The correct answer is:728,964   
1,423,560 Question 3
1,594,388   On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱12,000,000 and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a noninterest-bearing note
1,271,036 receivable of ₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and every January 1
thereafter. The prevailing rate of interest for this type of note is 12%.
3,380,102
Initial measurement: (8M ÷ 4) x PV ordinary annuity of 1 @12%, n=4 = 6,074,699  2. How much is the carrying amount of the receivable on December 31, 20x1?

Subsequent measurement:
Interest 2,690,051
Date Collections Amortization Present value
income 892,857
1/1/20x1 6,074,699 1,690,510

16
1,594,388   892,857
Question 5
Initial measurement: (4M ÷ 4) x PV annuity due of 1 @12%, n=4 = 3,401,831  On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱1,000,000 and
Subsequent measurement: accumulated depreciation of ₱300,000 in exchange for cash of ₱100,000 and a noninterest-bearing note
Interest receivable of ₱800,000 due on January 1, 20x4. The prevailing rate of interest for this type of note is 12%? 
Date Collections Amortization Present value
income 1. How much is the interest income in 20x1?
Jan. 1, 20x1 3,401,831 85,714 

Jan. 1, 20x1 1,000,000 - 1,000,000 2,401,831 76,532  

Jan. 1, 20x2 1,000,000 288,220 711,780 1,690,051 96,000  

Jan. 1, 20x3 1,000,000 202,806 797,194 892,857 68,331   

Jan. 1, 20x4 1,000,000 107,143 892,857 0 Initial measurement: 800,000 x PV of 1 @12%, n=3 = 569,424 

  Subsequent measurement:
Date  Interest income  Unearned interest  Present value
The carrying amount of the notes receivable as of December 31, 20x1 is determined as follows:
Carrying amount of notes receivable - Jan. 1, 20x2 1,690,051 1/1/x1 230,576 569,424

Add back: Collection on Jan. 1, 20x2 1,000,000 12/31/x1 68,331 162,245 637,755

Carrying amount of notes receivable - Dec. 31, 20x1 2,690,051 12/31/x2 76,531 85,714 714,286

The correct answer is:2,690,051 12/31/x3 85,714 - 800,000

Question 4 The correct answer is:68,331   
On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱12,000,000 and Question 6
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a noninterest-bearing note On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱20,000,000 and
receivable of ₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and every January 1 accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000 and a noninterest-bearing note
thereafter. The prevailing rate of interest for this type of note is 12%. 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%.
3. How much is the carrying amount of the receivable on January 1, 20x3?
3. How much is the carrying amount of the receivable on December 31, 20x2?
892,857
3,380,102
6,074,699       6,000,000 
6,000,000  6,074,699      
3,380,102 4,803,663
Initial measurement: (4M ÷ 4) x PV annuity due of 1 @12%, n=4 = 3,401,831 
Initial measurement: (8M ÷ 4) x PV ordinary annuity of 1 @12%, n=4 = 6,074,699 
Subsequent measurement:
Interest Subsequent measurement:
Date Collections Amortization Present value
income Interest
Date Collections Amortization Present value
income
Jan. 1, 20x1 3,401,831
1/1/20x1 6,074,699
Jan. 1, 20x1 1,000,000 - 1,000,000 2,401,831
12/31/20x1 2,000,000 728,964 1,271,036 4,803,663
Jan. 1, 20x2 1,000,000 288,220 711,780 1,690,051
12/31/20x2 2,000,000 576,440 1,423,560 3,380,102
Jan. 1, 20x3 1,000,000 202,806 797,194 892,857
12/31/20x3 2,000,000 405,612 1,594,388 1,785,714
Jan. 1, 20x4 1,000,000 107,143 892,857 0
12/31/20x4 2,000,000 214,286 1,785,714 0
 
The correct answer is: 3,380,102
The carrying amount of the notes receivable as of December 31, 20x1 is determined as follows:
Carrying amount of notes receivable - Jan. 1, 20x2 1,690,051 Question 7
Add back: Collection on Jan. 1, 20x2 1,000,000 On January 1, 20x1, ABC Co. sold 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
Carrying amount of notes receivable - Dec. 31, 20x1 2,690,051 receivable of ₱800,000 due on January 1, 20x4. The prevailing rate of interest for this type of note is 12%? 

The correct answer is: 2. How much is the carrying amount of the receivable on December 31, 20x2?

17
637,755         408,230   
800,000  278,334 
328,964   
714,286 
Initial measurement: (4M ÷ 4) x PV annuity due of 1 @12%, n=4 = 3,401,831 
569,424
Subsequent measurement:
Interest
Date Collections Amortization Present value
Initial measurement: 800,000 x PV of 1 @12%, n=3 = 569,424  income

Subsequent measurement: Jan. 1, 20x1 3,401,831

Date  Interest income  Unearned interest  Present value Jan. 1, 20x1 1,000,000 - 1,000,000 2,401,831
1/1/x1 230,576 569,424 Jan. 1, 20x2 1,000,000 288,220 711,780 1,690,051
12/31/x1 68,331 162,245 637,755 Jan. 1, 20x3 1,000,000 202,806 797,194 892,857
12/31/x2 76,531 85,714 714,286 Jan. 1, 20x4 1,000,000 107,143 892,857 0
12/31/x3 85,714 - 800,000  
The correct answer is:714,286  The carrying amount of the notes receivable as of December 31, 20x1 is determined as follows:
Question 8 Carrying amount of notes receivable - Jan. 1, 20x2 1,690,051
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 Add back: Collection on Jan. 1, 20x2 1,000,000
correct?
The ₱20,000 difference between the cash price and installment price is recognized as interest income on the Carrying amount of notes receivable - Dec. 31, 20x1 2,690,051
date of sale. The correct answers are: 278,334  ,
Net receivable of ₱75,000 is recognized on the date of sale. 288,220

Net receivable of ₱50,000 is recognized upon full payment of the total price.
Net receivable of ₱50,000 is recognized on the date of sale.
Practice Test 3.7, Receivable Financing
The correct answer is:Net receivable of ₱50,000 is recognized on the date of sale.
Question 9
An entity sells goods for ₱150,000 to a customer who was granted a special credit period of 1 year. The entity Question 1
normally sells the goods for ₱120,000 with a credit period of one month or with a ₱10,000 discount for outright On June 1, Clinton Corporation accepted a customer's ₱10,000, 9 percent, 3 month note. On July 1, the note
payment in cash. How much is the initial measurement of the receivable? was discounted at a bank at a rate of 12 percent. How much cash did Clinton receive from the bank on the
110,000  discounted note?
₱9,800.00
120,000
₱10,250.00
150,000
₱9,942.50
130,000 ₱10,020.50

MV = 10,000 + (10,000 x 9% x 3/12) = 10,225

Normal selling price with credit period of one month       120,000
D = 10,225 x 12% x 2/12 = 204.50
Discount for cash on delivery       (10,000)
NP = 10,225 – 204.50 = 10,020.50
Cash price equivalent of the goods sold       110,000

The correct answer is:₱10,020.50

The correct answer is:110,000  Question 2
Question 10 Jason Co. assigned ₱1,000,000 of accounts receivable to Easy Finance Co. as security for a loan of ₱840,000.
On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱12,000,000 and Easy charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a noninterest-bearing note first month, Jason collected ₱220,000 on the assigned accounts after deducting ₱760 of discounts. Jason
receivable of ₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and every January 1 accepted returns worth ₱2,700 and wrote off assigned accounts totaling ₱7,400.
thereafter. The prevailing rate of interest for this type of note is 12%.
1. The amount of cash Jason received from Easy at the time of the transfer was
1. How much is the interest income in 20x1?
₱756,000.

₱823,200.
288,220
18
₱820,000. assesses a 2 percent service charge on the total accounts receivable assigned. Riva Co. is to make monthly
payments to Pacific with cash collected on assigned accounts receivable. Collections of assigned accounts
₱840,000.
during September totaled ₱260,000 less cash discounts of ₱3,500. What were the proceeds from the
₱840,000 – ₱16,800 = ₱823,200. assignment of Riva's accounts receivable on September 1?
The correct answer is:₱823,200. ₱735,000
Question 3
On February 1, 2004, Norton Company factored receivables with a carrying amount of ₱500,000 to Koch ₱612,500
Company. Koch Company assessed a finance charge of 3% of the receivables and retains 5% of ₱610,000
the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in
the income statement of Norton Company for February. ₱625,000
 [625,000 – (750,000 x 2%)] = 610,000
The correct answer is:₱610,000
Question 7
1. Assume that Norton factors the receivables on a without recourse basis. The loss to be reported is On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as collateral on a
₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts receivable. Pacific also
assesses a 2 percent service charge on the total accounts receivable assigned. Riva Co. is to make monthly
₱25,000. payments to Pacific with cash collected on assigned accounts receivable. Collections of assigned accounts
during September totaled ₱260,000 less cash discounts of ₱3,500. What amount is owed to Pacific by Riva
₱40,000.
Co. for September collections plus accrued interest on the note to September 30?
₱15,000. ₱260,000
₱0. ₱266,250
₱500,000 × .03 = ₱15,000. ₱264,000
The correct answer is:₱15,000.
Question 4 ₱262,750
Simpson Company held a ₱6,000, 3-month, 15 percent note. One month before maturity, it discounted the note
(260,000 – 3,500) + (625,000 x 12% x 1/12) = 262,750
at 10 percent at a local bank. Approximately how much net income did Simpson earn on the note?
The correct answer is:₱262,750
₱173

₱60

₱52

₱225

MV = 6,000 + (6,000 x 15% x 3/12) = 6,225

D = 6,225 x 10% x 1/12 = 51.88
Question 8
NP = 6,225 – 51.88 = 6,173.12 On February 1, 2004, Norton Company factored receivables with a carrying amount of ₱500,000 to Koch
Company. Koch Company assessed a finance charge of 3% of the receivables and retains 5% of
Net interest = 6,173.12 net proceeds less 6,000 face amount = 173.12 the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in
the income statement of Norton Company for February.  
The correct answer is:₱173 2.    Assume that Norton factors the receivables on a with recourse basis. The recourse obligation has a fair
Question 5 value of ₱2,500.  The loss to be reported is
Jason Co. assigned ₱1,000,000 of accounts receivable to Easy Finance Co. as security for a loan of ₱840,000.
Easy charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the ₱25,000.
first month, Jason collected ₱220,000 on the assigned accounts after deducting ₱760 of discounts. Jason
accepted returns worth ₱2,700 and wrote off assigned accounts totaling ₱7,400. ₱15,000.

2. Entries during the first month would include a ₱42,500.

₱17,500.
debit to Bad Debt Expense of ₱7,400.
(₱500,000 × .03) + ₱2,500 = ₱17,500.
debit to Allowance for Doubtful Accounts of ₱7,400.
The correct answer is:₱17,500.
debit to Cash of ₱220,760. Question 9
On January 1, Parent Company gave Kids, Inc. a ₱5,000, 2-month, 6 percent note in payment of its account.
debit to Accounts Receivable of ₱230,860. One month later, Kids discounted the note at the bank at 8 percent. The cash that Kids received from the bank
was (rounded to the nearest dollar)
The correct answer is:debit to Allowance for Doubtful Accounts of ₱7,400.
₱5,022.
Question 6
On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as collateral on a ₱5,010.
₱625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts receivable. Pacific also

19
₱4,960. The correct answer is:reduced by P4,000
Question 4
₱5,016 If a company usually sells its accounts receivable, it records any factoring commissions as a(an):
MV = 5,000 + (5,000 x 6% x 2/12) = 5,050 liability

D = 5,050 x 8% x 1/12 = 33.67 loss

NP = 5,050 – 33.67 = 5,016.33 receivable

The correct answer is:₱5,016 expense

Question 10 The correct answer is:expense
If a 3-month non-interest-bearing note receivable of ₱10,000 is discounted at a bank at 10 percent, how much Question 5
cash is received? A note receivable that is sold (i.e. discounted) to obtain early cash must be: 
₱9,750 retained in the accounts in the same manner as before discounting. 
₱10 reported as a sale or a loan. 
₱1,010 disclosed as a contingent liability if it is discounted without recourse.
₱999 reported as an extraordinary loss if it is dishonored.
MV = 10,000 + (10,000 x 0% x 3/12) = 10,000 The correct answer is:reported as a sale or a loan. 
D = 10,000 x 10% x 3/12 = 250 Question 6
Manila and Company accepted a 5,000, 8%, 90-day note receivable for services rendered to a client. Thirty
NP = 10,000 – 250 = 9,750 days later Manila and Company discounted the note at a bank at 10%. The entry to record the proceeds from
the sales of the note would include a: 
credit to notes receivable for P50,000
The correct answer is:
₱9,750 credit to interest income for P100. 
Practice Test 3.8, Receivable Financing
debit to loss from discounting of note P150.

Question 1 debit to cash for P51,000

The carrying value of an impaired note before recognizing a loan impairment:  The correct answer is:credit to interest income for P100. 
excludes accrued interest.
includes accrued interest.
is the same as the carrying value after recognizing the impairment. 
is less than the carrying value after recognizing the impairment
The correct answer is:includes accrued interest.
Question 2
Question 7
On September 1, 2014, Thunder Company received an P80,000, 12%, 120-day note from a credit customer Which of the following is not a basic form of financing agreement to obtain cash from accounts receivable? 
wishing to extend its repayment period. On October 1, 2014, thirty days after the note was received, Thunder Factoring
discounted the note at the bank at 14%. How much cash did Thunder Company received from the bank? 
P 80,288 Assigning

P 80,749 Pledging

Deferring
P 80,800
The correct answer is:Deferring
P 79,317 Question 8
A non-interest bearing note receivable:
The correct answer is:P 80,288 includes a specified principal amount plus specified interest
Question 3
The Inu-Yasha Company sells P40,000 of accounts receivable to a factor and receives 94% of the value of the includes an unspecified principal amount and an unspecified interest amount
factored accounts less a 10% commission based on the gross amount of factored accounts receivable. After includes a specified principal amount but an unspecified interest amount
the journal entry to record this factoring transaction is made, Inu-Yasha Company's total assets will be: 
reduced by P4,000 causes no interest revenue to be recorded

reduced by P2,400 The correct answer is:includes an unspecified principal amount and an unspecified interest amount
Question 9
increased by P4,000 On November 1, Senorita Blankets sold goods for P12,000 and accepted a six-month non-interest bearing note. Current interest
rates were 10%. The December 31 adjusting entry should be: 
increased by P33,600 Discount on Notes Receivable              200

20
         Interest Revenue                                  200 liability account. 

Interest Receivable                           200 expense account. 

         Interest Revenue                                  200 asset account. 

Interest Revenue                          200 The correct answer is:contra-asset account. 

Question 14
         Discount on Notes Receivable                     200 A company received two one-year notes in payment for merchandise sold. One note had a face amount of P6,000 and was
interest-bearing at an annual rate of 18 percent. The other note had a face amount of P7,080 and was non-interest bearing (its
Interest Revenue                          400 implied interest rate was 18 percent). 
         Interest Receivable                            400 Both notes will cause the same total interest to be recognized. 

The correct answer is: The non-interest bearing note shows a higher book value immediately after the sale. 
Discount on Notes Receivable              200 The total amount of cash ultimately to be received will be more for the interest-bearing note. 
         Interest Revenue                                  200 The amount which should be credited to sales revenue is more for the non-interest bearing note. 
Question 10
Which of the following is a means of using receivables to obtain immediate cash?  The correct answer is:Both notes will cause the same total interest to be recognized. 
Pledging Question 15
Happy Inc., assigned P10,000 to a finance company, receiving an advance of 90% less a service charge of P400. Later, P2,000
Assignment of these receivables were collected and remitted to the finance company with an additional P200 of interest. Given this
Factoring information, which entry would not be made? 

All of the above

Notes Payable                                                          2,000
The correct answer is:All of the above
Question 11 Interest Expense                                                         200
On June 3, Valiant Bank loaned a customer P30,000 on a 60-day, 10% note, remitting the face value less the interest to the                  Cash                                                                    2,200
customer. Which of the following journal entries would Valiant Bank use to record the receipt of the note? 
Notes Receivable                    29,500 Cash                                                                        2,000
               Cash                                        29,500                  Accounts Receivable Assigned                              2,000
Notes Receivable                    30,000 Cash                                                                        8,600
               Cash                                        30,000 Assignment Service Charge Expense                         400
Notes Receivable                    30,000                  Accounts Receivable                                                    9,000
                    Interest Revenue                          500 Accounts Receivable Assigned                      10,000

                     Cash                                        29,500                      Accounts Receivable                                    10,000

Notes Receivable                            30,000 The correct answer is:

Cash                                                                        8,600
                 Interest Revenue                                  3,000
Assignment Service Charge Expense                         400
                 Cash                                                   27,000
                 Accounts Receivable                                                    9,000
The correct answer is:
Notes Receivable                    30,000 Question 16
                    Interest Revenue                          500 Choose the correct statement about recording the discounting (with recourse) of a customer's four-month note
with a financial institution. Assume the note is held for a month before it is discounted. 
                     Cash                                        29,500 The notes receivable discounted account represents both a contra-notes receivable and a contingent liability. 
Question 12
Which of the following describes the carrying value of an impaired note immediately following the recognition of The gain or loss on discounting equals the difference between the proceeds and the face value of the note. 
the impairment?  There is only one way to disclose the contingent liability. 
Present value of remaining cash flows to be received, discounted at the current market rate of interest
The financial institution bases its discount (fee) on the face value of the note. 
Nominal sum of remaining cash flows to be received
The correct answer is:The notes receivable discounted account represents both a contra-notes receivable and
The book value before the impairment is recognized less accrued interest a contingent liability. 
Present value of remaining cash flows to be received, discounted at the original interest rate implicit in the note Question 17
Which of the following would indicate that a note receivable or other loan is impaired? 
The correct answer is:Present value of remaining cash flows to be received, discounted at the original interest when the maker of the note experiences financial difficulties
rate implicit in the note
Question 13 when it is written off
When a company discounts its notes receivable at a bank, the common practice is to record the discounted notes in a(an): 
contra-asset account.  when the market value of the note falls below its book value due to interest rate changes

21
when it is probable that principal payments will be delayed Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000
The correct answer is:when it is probable that principal payments will be delayed Note: use single space
Question 18
Which statement is not true?        On May 1, 2014, Nico Company sold merchandise to Customer Francis and received a P26,400 (face
Notes Receivable initially should be recorded at the present value of the future cash receipts on the date of amount), one-year, noninterest-bearing note. The going (i.e. market) rate of interest is 10 percent. The
issue.  annual reporting period for Nico Company ends on December 31. Customer Francis paid the note in
full on its maturity date. 
The account Notes Receivable Dishonored is an asset account. 
What is the journal entry to record December 31, 2014 transaction? 
Discount on Notes Receivable is a contra-account frequently found with interest-bearing notes.  The correct answer is: Debit Notes Receivable 1,600 and Credit Interest Revenue 1,600
Question 3
All notes implicitly carry interest.  Follow the format below for your journal entries:
The correct answer is:Discount on Notes Receivable is a contra-account frequently found with interest-bearing Debit Cash 1,000 and Credit Sales 1,000
notes. 
Question 19 Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000
On June 11, Del-V, Inc., accepted a P7,000, 6%, 60-day note from a customer. On June 26, the company
discounted the note at a bank at 8%. The proceeds amounted to:  Note: use single space
P 6,976.67       On May 1, 2014, Nico Company sold merchandise to Customer Francis and received a P26,400 (face
P 6,999.30 amount), one-year, noninterest-bearing note. The going (i.e. market) rate of interest is 10 percent. The
annual reporting period for Nico Company ends on December 31. Customer Francis paid the note in
P 7,046.43 full on its maturity date. 
P 7,000.00 What is the journal entry to record April 30, 2015 transaction? 
The correct answer is: Debit Cash 26,400 and Credit Notes Receivable 25,600 Credit Interest Revenue 800
The correct answer is:P 6,999.30 Question 4
Follow the format below for your journal entries:
Debit Cash 1,000 and Credit Sales 1,000

Question 20 Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000
Short-term non-interest bearing notes receivable are usually recorded at their:  Note: use single space
maturity value. 
      On May 1, 2014, Nico Company sold merchandise to Customer Francis and received a P26,400 (face
present value. amount), one-year, noninterest-bearing note. The going (i.e. market) rate of interest is 10 percent. The
net realizable value. annual reporting period for Nico Company ends on December 31. Customer Francis paid the note in
full on its maturity date. 
principal value. 
What is the amount of Interest Revenue for 2014? 
The correct answer is:maturity value.  The correct answer is: 1,600

Practice Test 3.9, Notes Receivable

Question 1
Follow the format below for your journal entries:
Debit Cash 1,000 and Credit Sales 1,000
Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000 Question 5
Follow the format below for your journal entries:
Note: use single space
Debit Cash 1,000 and Credit Sales 1,000
      On May 1, 2014, Nico Company sold merchandise to Customer Francis and received a P26,400 (face
amount), one-year, noninterest-bearing note. The going (i.e. market) rate of interest is 10 percent. The Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000
annual reporting period for Nico Company ends on December 31. Customer Francis paid the note in
full on its maturity date.  Note: use single space

What is the journal entry to record May 1, 2014 transaction?        On May 1, 2014, Nico Company sold merchandise to Customer Francis and received a P26,400 (face
The correct answer is: Debit Notes Receivable 24,000 and Credit Sales 24,000 amount), one-year, noninterest-bearing note. The going (i.e. market) rate of interest is 10 percent. The
Question 2 annual reporting period for Nico Company ends on December 31. Customer Francis paid the note in
Follow the format below for your journal entries: full on its maturity date. 

Debit Cash 1,000 and Credit Sales 1,000 What is the balance of Notes Receivable for 2014? 
The correct answer is: 25,600

22
Practice Test 3.10, Discounting of Notes Receivable      On May 1, 2014, Kristoffer Company sold merchandise to Customer Gwen for P40,000, credit terms
2/10, n/EOM. At the end of May, Customer Gwen could not make payment. Instead, a six-month, 12
percent note receivable of P40,000 was received by Kristoffer (dated June 1, 2014). Kristoffer
Question 1 Company's accounting period ends December 31. On August 1, 2014, Kristoffer discounted (i.e. sold)
Follow the format below for your journal entries: this note, with recourse, to Metropolis Bank at 14 percent interest. On the maturity date, Gwen paid the
Debit Cash 1,000 and Credit Sales 1,000 bank in full for the note. 

Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000 What is the journal entry to record the discounting? 
The correct answer is: Debit Cash 40,421 Loss on sale of note 379 and Credit Notes Receivable 40,000
Note: use single space Interest Receivable 800
     On May 1, 2014, Kristoffer Company sold merchandise to Customer Gwen for P40,000, credit terms Practice Test 4.1, Inventories
2/10, n/EOM. At the end of May, Customer Gwen could not make payment. Instead, a six-month, 12
percent note receivable of P40,000 was received by Kristoffer (dated June 1, 2014). Kristoffer
Company's accounting period ends December 31. On August 1, 2014, Kristoffer discounted (i.e. sold) Question 1
this note, with recourse, to Metropolis Bank at 14 percent interest. On the maturity date, Gwen paid the The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its
bank in full for the note. 
invoice price.
What is the journal entry to record the sale of merchandise? 
The correct answer is: Debit Accounts Receivable 39,200 and Credit Sales 39,200 invoice price less the purchase discount allowable whether taken or not.
Question 2 invoice price less the purchase discount taken.
Follow the format below for your journal entries:
invoice price plus the purchase discount lost.
Debit Cash 1,000 and Credit Sales 1,000
The correct answer is:invoice price less the purchase discount allowable whether taken or not.
Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000 Question 2
Note: use single space On June 15, 2004, Stilley Corporation accepted delivery of merchandise which it purchased on account.  As of
June 30, Stilley had not recorded the transaction or included the merchandise in its inventory. Stilley uses the
     On May 1, 2014, Kristoffer Company sold merchandise to Customer Gwen for P40,000, credit terms periodic inventory system. The effect of the error on Stilley’s balance sheet on June 30, 2004 would be
2/10, n/EOM. At the end of May, Customer Gwen could not make payment. Instead, a six-month, 12
percent note receivable of P40,000 was received by Kristoffer (dated June 1, 2014). Kristoffer none of these.
Company's accounting period ends December 31. On August 1, 2014, Kristoffer discounted (i.e. sold) assets and stockholders' equity were overstated but liabilities were not affected.
this note, with recourse, to Metropolis Bank at 14 percent interest. On the maturity date, Gwen paid the
bank in full for the note.  assets, liabilities, and stockholders' equity were understated.
What is the journal entry to record the note received?  stockholders' equity was the only item affected by the omission.
The correct answer is: Debit Notes Receivable 40,000 and Credit Accounts Receivable 39,200 Credit Interest
Revenue 800 The correct answer is:none of these.
Question 3 Question 3
Follow the format below for your journal entries: When using a perpetual inventory system,

Debit Cash 1,000 and Credit Sales 1,000 two entries are required to record a sale.

Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000 all of these.

Note: use single space no Purchases account is used.

     On May 1, 2014, Kristoffer Company sold merchandise to Customer Gwen for P40,000, credit terms a Cost of Goods Sold account is used.
2/10, n/EOM. At the end of May, Customer Gwen could not make payment. Instead, a six-month, 12 The correct answer is:all of these.
percent note receivable of P40,000 was received by Kristoffer (dated June 1, 2014). Kristoffer
Company's accounting period ends December 31. On August 1, 2014, Kristoffer discounted (i.e. sold)
this note, with recourse, to Metropolis Bank at 14 percent interest. On the maturity date, Gwen paid the
bank in full for the note. 
What is the journal entry to record the interest earned for June and July?  Question 4
The correct answer is: Debit Interest Receivable 800 and Credit Interest Revenue 800 Dane Co. received merchandise on consignment. As of March 31, Dane had recorded the transaction as a
Question 4 purchase and included the goods in inventory. None of the consigned goods have been sold during the period.
Follow the format below for your journal entries: The effect of this on its financial statements for March 31 would be

Debit Cash 1,000 and Credit Sales 1,000 net income and current liabilities were overstated.

Debit Cash 500 Debit Accounts Receivable 500 and Credit Sales 1,000 no effect.

Note: use single space net income was correct and current assets and current liabilities were overstated.
net income, current assets, and current liabilities were overstated.

23
The correct answer is:net income was correct and current assets and current liabilities were overstated. The correct answer is:included in the inventory of the buyer.
Question 5
Question text
In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation
similar to the first-in, first-out method is
prime cost.
base stock. Question 10
During 2004 Elway Corporation transferred inventory to Howell Corporation and agreed to repurchase the
joint cost. merchandise early in 2005. Howell then used the inventory as collateral to borrow from Norwalk Bank, remitting
the proceeds to Elway. In 2005 when Elway repurchased the inventory, Howell used the proceeds to repay its
average cost. bank loan.
The correct answer is:average cost. On whose books should the cost of the inventory appear at the December 31, 2004 balance sheet date?
Question 6
Eller Co. received merchandise on consignment.  As of January 31, Eller included the goods in inventory, but Howell Corporation
did not record the transaction. The effect of this on its financial statements for January 31 would be
Norwalk Bank
net income and current assets were overstated and current liabilities were understated.
Howell Corporation, with Elway making appropriate note disclosure of the transaction
net income was correct and current assets were understated.
Elway Corporation
net income, current assets, and retained earnings were understated.
The correct answer is:Elway Corporation
net income, current assets, and retained earnings were overstated.
Practice Test 4.2, Inventory Systems
The correct answer is:net income, current assets, and retained earnings were overstated.
Question 7
Which of the following items should be included in a company's inventory at the balance sheet date? Question 1
Each statement describes a characteristic of the periodic and/or perpetual inventory systems. Some
Goods received from another company for sale on consignment. statements relate to only one statement, some statements relate to both systems, and some relate to neither
system. Select which inventory system indicates the appropriate system for each item.
Goods in transit which were purchased f.o.b. destination.
An inventory control account with a changing balance is maintained. 
Goods sold to a customer which are being held for the customer to call for at his or her convenience.
periodic inventory system
none of these.
Both of these. 
The correct answer is:none of these.
perpetual inventory system
Question 8
During 2004 Elway Corporation transferred inventory to Howell Corporation and agreed to repurchase the None of these. 
merchandise early in 2005. Howell then used the inventory as collateral to borrow from Norwalk Bank, remitting
the proceeds to Elway. In 2005 when Elway repurchased the inventory, Howell used the proceeds to repay its The correct answer is:perpetual inventory system
bank loan. Question 2
The amount (balance) in the inventory account throughout the accounting period usually is the
beginning inventory amount. 
The correct answer is:periodic inventory system
This transaction is known as a Question 3
Cost of goods sold is determined as a residual amount. 
consignment.
The correct answer is:periodic inventory system
assignment for the benefit of creditors. Question 4
A physical inventory count rarely, if ever, is taken. 
product financing arrangement. The correct answer is:
None of these. 
installment sale. Question 5
The correct answer is:product financing arrangement. When an item is sold, two concurrent accounting entries are made for different amounts. 
Question 9 The correct answer is:perpetual inventory system
Goods in transit which are shipped f.o.b. shipping point should be Question 6
Inventory amounts are determined from the detailed inventory records. 
included in the inventory of the seller. The correct answer is:perpetual inventory system
Question 7
none of these. Purchases of merchandise are not debited to the inventory account throughout the period. 
included in the inventory of the shipping company. The correct answer is:periodic inventory system
Question 8
included in the inventory of the buyer. Each purchase is debited to the inventory account throughout the accounting period. 

24
The correct answer is:perpetual inventory system ₱2,000 – (₱2,000 × .02) = ₱1,960.
Question 9 The correct answer is:₱1,960.
Only one accounting entry is made when an item is sold.  Question 3
The correct answer is:periodic inventory system Queen Co. records purchases at net amounts. On May 5 Queen purchased merchandise on account, ₱32,000,
Question 10 terms 2/10, n/30. Queen returned ₱2,000 of the May 5 purchase and received credit on account. At May 31 the
Only one accounting entry is made to record a purchase of merchandise.  balance had not been paid.
The correct answer is:Both of these. 
Question 11 By how much should the account payable be adjusted on May 31?
The method which usually involves more detailed record keeping. 
The correct answer is:perpetual inventory system ₱640.
Question 12
At the end of the accounting period, two inventory systems usually must be made in the accounts.  ₱ 0. 
The correct answer is:periodic inventory system
₱680.
Question 13
₱600.
Inventory amounts are determined by actual count. 
The correct answer is:periodic inventory system (₱32,000 – ₱2,000) × .02 = ₱600.
Question 14 The correct answer is:₱600.
More effective inventory control (such as theft) is possible.  Question 4
The correct answer is:perpetual inventory system The following information was available from the inventory records of Moen Company for January:

Practice Test 4.3, Inventories                                  Units               Unit Cost Total Cost

Balance at January 1              3,000                  ₱9.77 ₱29,310
Question 1
The following information is available for Kerr Company for 2004: Purchases:

Freight-in                                                  ₱  60,000 January 6                  2,000                  10.30 20,600

Purchase returns                                         150,000 January 26                2,700                  10.71 28,917

Selling expenses                                          300,000

Ending inventory                                        520,000 Sales:
January 7                (2,500)
January 31              (3,200)
The cost of goods sold is equal to 300% of selling expenses.  What is the cost of goods available for sale?
Balance at January 31            2,000

₱900,000. Assuming that Moen does not maintain perpetual inventory records, what should be the inventory at January
31, using the weighted-average inventory method, rounded to the nearest peso?
₱1,420,000.
₱1,330,000. ₱20,520.

₱1,480,000. ₱20,720.

₱520,000 + (3 × ₱300,000) = ₱1,420,000. ₱20,474.

The correct answer is:₱1,420,000.
Question 2 ₱21,010.
Queen Co. records purchases at net amounts. On May 5 Queen purchased merchandise on account, ₱32,000, (₱29,310 + ₱20,600 + ₱28,917) ÷ (3,000 + 2,000 + 2,700) = ₱10.237/unit 
terms 2/10, n/30. Queen returned ₱2,000 of the May 5 purchase and received credit on account. At May 31 the
balance had not been paid.                                                           ₱10.237 × 2,000 = ₱20,474.
The amount to be recorded as a purchase return is The correct answer is:₱20,474.

₱2,000.
₱1,960.
₱2,040.
Question 5
₱1,800. The following information was available from the inventory records of Moen Company for January:

                                 Units               Unit Cost Total Cost

25
Balance at January 1              3,000                  ₱9.77 ₱29,310  As allocated - 6,195

Purchases:
The correct answer is:₱6,195.
January 6                  2,000                  10.30 20,600
Question 8
January 26                2,700                  10.71 28,917 Transactions for the month of June were:
Sales:                   Purchases                                        Sales 
January 7                (2,500) June 1 (balance)  1,200 @ ₱3.20  June 2  900 @ ₱5.50 
January 31              (3,200)          3                   3,300 @ 3.10           6  2,400 @ 5.50 
Balance at January 31            2,000          7                   1,800 @ 3.30           9   1,500 @ 5.50 
Assuming that Moen maintains perpetual inventory records, what should be the inventory at January 31, using the moving-         15                   2,700 @ 3.40          10     600 @ 6.00 
average inventory method, rounded to the nearest peso?
₱20,720.         22                     750 @ 3.50                 18  2,100 @ 6.00 
Avg. on 1/6 ₱49,910 ÷ 5,000 = ₱9.982/unit                                   25    450 @ 6.00
1/26 ₱53,872 ÷ 5,200 = ₱10.36/unit Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost basis, rounded to the
nearest dollar, is
₱10.36 × 2,000 = ₱20,720.
 
The correct answer is:₱20,720.    Units Unit cost Total cost

Question 6 June 1 (balance)                 1,200         3.20                   3,840

James Co. has the following data related to an item of inventory:
3                 3,300         3.10                 10,230
Inventory, March 1          200 units @ ₱4.20
7                 1,800         3.30                   5,940
Purchase, March 7         700 units @ ₱4.40
15                 2,700         3.40                   9,180
Purchase, March 16       140 units @ ₱4.50
22                    750         3.50                   2,625
Inventory, March 31        300 units

The value assigned to cost of goods sold if James uses FIFO is  TGAS                 9,750                   31,815

200 + 700 + 140 – 300 = 740 units  TGAS (in units) = 1,200 + 3,300 + 1,800 + 2,700 + 750 = 9,750 units
(200 × ₱4.20) + (540 × ₱4.40) = ₱3,216. Average cost = ₱31,815 ÷ 9,750 units = ₱3.26
Ending inventory (pesos) = 1,800 units x ₱3.26 = ₱5,868
The correct answer is:₱3,216.
Question 7
Transactions for the month of June were: The correct answer is:₱5,868.
                  Purchases                                        Sales  Question 9
The following information applied to Flynn, Inc. for 2004:
June 1 (balance)  1,200 @ ₱3.20  June 2  900 @ ₱5.50 
Merchandise purchased for resale            ₱400,000
         3                   3,300 @ 3.10           6  2,400 @ 5.50 
Freight-in                                                16,000
         7                   1,800 @ 3.30           9   1,500 @ 5.50 
Freight-out                                                10,000
        15                   2,700 @ 3.40          10     600 @ 6.00 

        22                     750 @ 3.50                 18  2,100 @ 6.00  Purchase returns                                      4,000

                                  25    450 @ 6.00 Flynn's 2004 inventoriable cost was

Assuming that perpetual inventory records are kept in pesos, the ending inventory on a FIFO basis is
₱406,000.
EI (in units) = 1,200 + 3,300 + 1,800 + 2,700 + 750 – 900 – 2,400 – 1,500 – 600 – 2,100 – 450 = 1,800  ₱400,000.
   Units Unit cost Total cost
₱422,000.
 Ending inventory 1,800

 From June 22 purchase (750) @3.50 2,625 ₱412,000.

 balance 1,050 ₱400,000 + ₱16,000 – ₱4,000 = ₱412,000.

The correct answer is:₱412,000.
 From June 15 purchase (1,050) @3.40 3,570

26
Question 10
Tysen Retailers purchased merchandise with a list price of ₱90,000, subject to trade discounts of 20% and
10%, with no cash discounts allowable. Tysen should record the cost of this merchandise as
₱63,000.
₱64,800.
₱70,200.
₱90,000. Practice Test 4.4, Inventories

₱90,000 × .8 × .9 = ₱64,800
The correct answer is:₱64,800. Question 1
Question 11 The inventory on hand at the end of 2014 for the Martian Company is valued at a cost of P87,450. The
In a period of rising prices, the use of FIFO relates the current high costs of acquiring goods with rising sales following items were not included in this inventory:
prices. As a result, FIFO tends to have a stabilizing effect on gross profit margins. 1. Purchased goods in transit, under terms FOB shipping point, invoice price P3,300, freight costs, P170.
FALSE – Under FIFO, COGS is measured using the cost of the earliest purchases. Accordingly, in a period of
rising prices, the FIFO method matches lower costs to rising sales prices. 2. Goods out on consignment to Earthling Company, sales price P2,800, shipping costs of P210. 
The correct answer is 'False'. 3. Goods sold to ET Co. under terms FOB destination, invoiced for P1,700, including P251 freight charges to
Question 12 deliver the goods. Goods are in transit. 
The gross method of accounting for purchase discounts is theoretically preferable to the net method.
The correct answer is 'False'. 4. Goods held on consignment by the Martian Company at a sales price of P3,700, including sales commission
Question 13 of 20% of sales price. 
The gross method of accounting for purchase discounts reflects the fact that discounts not taken are in effect
5. Purchased goods in transit, shipped FOB destination, invoice price P2,100 including freight charges of
credit-related expenditures incurred for failure to pay within the discount period.
P190. 
False 
FALSE – net method The correct answer is 'False'. Determine the cost of the ending inventory that Martian should report on its December 31, 2014, statement of
financial position, assuming that its selling price is 140% of the cost of the inventory. 
Question 14
Ending inventory on hand (before adjustments)                                          P87,450
The specific identification method is a highly objective approach to matching historical costs with revenues.
The correct answer is 'True'. 1. Goods in transit (FOB shipping point)                                                              3,300
Question 15
The specific identification, as an inventory method, matches the flow of recorded costs to the physical flow of Freight costs (freight-in)                                                                                170
goods.
2. Goods out on consignment [(P2,800 / 1.40) + P210*]                                      2,210
The correct answer is 'True'.
Question 16 3. Goods sold to ET Co. Company, FOB destination
With FIFO, inventories are reported on the balance sheet at or near their current value.
The correct answer is 'True'. [(P1,700  –  P251#) / 1.40]                                                                             1,035
Question 17
Unlike other inventory cost methods, the average cost approach provides the same unit cost for items of equal 4. Not recorded in inventory by consignee                                                      -0-
utility. 5. Not recorded in inventory until received by customer                          -0-
The correct answer is 'True'. Ending inventory, December 31, 2014                                                           P94,165
Question 18
FIFO provides income tax savings during periods of falling prices. * Shipping costs for goods out on consignment are included as a cost of inventory.
# Freight charges to deliver the goods (freight-out) are not included in inventory or cost of gods sold.
The correct answer is 'True'.
Question 19
Inventories are measured at net realizable value (NRV). The correct answer is: 94165
The correct answer is 'False'.
Question 20
Inventory write-downs and reversals of write-downs are always recognized in profit or loss.

FALSE – Lower of Cost and NRV

The correct answer is 'True'.

27
 Adjustments
   Increase (Decrease)
1.                         P (155,000) P (155,000)              None
Question 2 2.                             (22,000)               None                      None
The Amber Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from
Amber's accounting records are as follows:  3.                                       None                       None      P     40,000

Inventory at December 31, 2014 (based on physical count of goods in Amber's warehouse on December 31, 4.                            210,000               None                      None
2014)                                    P 1,250,000
5.                              25,000     25,000                      None
Sales in 2014                                                                                                                                                         
6.                                2,000       2,000                      None
P 9,000,000
7.  (P265,000 x 2%)              (5,300)          (5,300)      None
Accounts Payable at December 31, 2014: 
Total adjustments         P     54,700          P   (133,300) P     40,000
Vendor                                             Terms                                 Amount
Adjustment amounts P 1,304,700    P     866,700         P9,040,000
Blue Company                        2% 10 days, net 30                  P 265,000
Crimson Company                        Net 30                                  210,000
The correct answer is: 866700
Dark Brown Company                  Net 30                                   300,000 Question 3
The Amber Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from
Emerald Company                       Net 30                                    225,000 Amber's accounting records are as follows: 
Fucshia Company                        Net 30                                         - Inventory at December 31, 2014 (based on physical count of goods in Amber's warehouse on December 31,
2014)                                    P 1,250,000
Gold Company                            Net 30                                         -
Sales in 2014                                                                                                                                                         
                                                                                                  P 1,000,000 P 9,000,000
Additional information is as follows:  Accounts Payable at December 31, 2014: 
1. Parts held on consignment from Crimson to Amber, the consignee, amounting to P155,000, were not Vendor                                             Terms                                 Amount
included in the physical count of goods in Amber's warehouse on December 31, 2014 and in accounts payable
at December 31, 2014.  Blue Company                        2% 10 days, net 30                  P 265,000
2. P22,000 of parts which were purchased from Fuchsia and paid for in December 2014 were sold in the last Crimson Company                        Net 30                                  210,000
week of 2014 and appropriately recorded as sales of P28,000. The parts were included in the physical count of
goods in Amber's warehouse on December 31, 2014 because the parts were on the laoding dock waiting to be Dark Brown Company                  Net 30                                   300,000
picked up by customers. 
Emerald Company                       Net 30                                    225,000
3. Parts in transit on December 31, 2014 to customers, shipped FOB shipping point on December 31, 2014,
Fucshia Company                        Net 30                                         -
amounted to P34,000. The customer received the parts on January 7,2015. Sales of P40,000 to the customers
for the parts were recorded by Amber on January 2, 2014.  Gold Company                            Net 30                                         -
4. Retailers were holding P210,000 at cost (P250,000 at retail) of goods on consignment from Amber, the                                                                                                   P 1,000,000
consignor, at their stores on December 31, 2014. 
Additional information is as follows: 
5. Goods were in transit from Gold to Amber on December 31, 2014. The cost of goods was P25,000, and they
were shipped FOB shipping point on December 29, 2014.  1. Parts held on consignment from Crimson to Amber, the consignee, amounting to P155,000, were not
included in the physical count of goods in Amber's warehouse on December 31, 2014 and in accounts payable
6. A quarterly freight bill in the amount of P2,000 specifically relating to merchandise purchases in December at December 31, 2014. 
2014, all of which was still in the inventory at December 31, 2014, was received on January 4, 2015. The
freight bill was not included in either the inventory or in accounts payable at December 31, 2015.  2. P22,000 of parts which were purchased from Fuchsia and paid for in December 2014 were sold in the last
week of 2014 and appropriately recorded as sales of P28,000. The parts were included in the physical count of
7. All of the purchases from Blue occurred during the last seven days of the year. These items have been goods in Amber's warehouse on December 31, 2014 because the parts were on the laoding dock waiting to be
recorded in accounts payable and accounted for in the physical inventory at cost before discount. Amber's picked up by customers. 
policy is to pay invoices in time to take advantage of all cash discounts, adjust inventory accordingly, and
record accounts payable, net of cash discounts.  3. Parts in transit on December 31, 2014 to customers, shipped FOB shipping point on December 31, 2014,
amounted to P34,000. The customer received the parts on January 7,2015. Sales of P40,000 to the customers
How much is the amount of adjusted accounts payable?  for the parts were recorded by Amber on January 2, 2014. 
                                       Inventory             Accounts Payable     Sales
4. Retailers were holding P210,000 at cost (P250,000 at retail) of goods on consignment from Amber, the
Initial amounts P1,250,000 P1,000,000 P9,000,000 consignor, at their stores on December 31, 2014. 

28
5. Goods were in transit from Gold to Amber on December 31, 2014. The cost of goods was P25,000, and they   (a)   4,200 x P100  =  P420,000
were shipped FOB shipping point on December 29, 2014. 
  (b)   (4,000 x P150)  +  (1,800 x P100)  =  P780,000
6. A quarterly freight bill in the amount of P2,000 specifically relating to merchandise purchases in December
2014, all of which was still in the inventory at December 31, 2014, was received on January 4, 2015. The   (c)   [(4,000 x P150)  +  (6,000 x P100)] / 10,000  =  P120 x 4,200  =  P504,000
freight bill was not included in either the inventory or in accounts payable at December 31, 2015.    (d)   5,800  x  P120  =  P696,000
7. All of the purchases from Blue occurred during the last seven days of the year. These items have been
recorded in accounts payable and accounted for in the physical inventory at cost before discount. Amber's The correct answer is: 696000
policy is to pay invoices in time to take advantage of all cash discounts, adjust inventory accordingly, and Question 5
record accounts payable, net of cash discounts.  JC Corporation is in the process of adjusting and closing the books and preparing financial statements at the
How much is the amount of adjusted inventory?  end of the year, December 31, 2014. One item of concern is in the ending inventory of goods on hand. After
A the count had been completed, additional items not included in the storeroom count were listed for
                                       Inventory             Accounts Payable     Sales consideration. You are to consider each item and decide whether it should be included in the ending inventory
for 2014. 
Initial amounts P1,250,000 P1,000,000 P9,000,000
                                                                                      
Adjustments Cost                               Merchandise Inventory Valuation
   Increase (Decrease) Initial inventory valuation based on a count of all goods on hand only, unless otherwise noted                             
P 200,000
1.                         P (155,000) P (155,000)              None
(a) Goods in a back room of the store were not included in the storeroom count at purchase cost. 
2.                             (22,000)               None                      None
They are damaged and will be disposed of as salvage.                                                                                  P
3.                                       None                       None      P     40,000 1,400
4.                            210,000               None                      None (b) Goods shipped on December 30, FOB destination, invoice mailed to our customer, 
5.                              25,000     25,000                      None delivery date January 5, 2015.                                                                                                                               
6.                                2,000       2,000                      None 800

7.  (P265,000 x 2%)              (5,300)          (5,300)      None (c) Goods currently being used for window displays (not damaged); were not included in the 

Total adjustments         P     54,700          P   (133,300) P     40,000 count.                                                                                                                                                                 

1,800
Adjustment amounts P 1,304,700    P     866,700         P9,040,000
(d) Goods in receiving section that was shipped to JC on order. JC has refused to accept them

The correct answer is: 1304700 because of their damaged condition. They will be picked up on January 20 by the vendor                           
Question 4 2,000
The records of a company showed the following for June:  (e) Goods shipped to customer on December 30, FOB shipping point.                                                           
Sales                                 4,200 units at P200 each 1,000

Purchases                         4,000 units at P150 each (f) An invoice has been received for goods ordered from a supplier; the goods had been shipped, but

Beginning inventory         6,000 units at P100 each not yet received (JC Corporation pays the freight).                                                                                             
600
Assuming the periodic inventory system is used, how much is the ending inventory using the weighted
average method?  (g) Goods held by JC on consignment from PJ Company, not included in the count.                                       
1,200
  FIFO Average  
  (1)   Sales (4,200 units x P200) P840,000 P840,000 
 Items in one corner of the storeroom were not included in the count because they had been set 
  (2)   Cost of goods sold (a) P420,000 (c) P504,000 
aside for a sales order to be shipped on January 15.                                                                                           
  (3)   Gross margin (1) – (2) P420,000 P336,000  400

  (4)   Ending inventory      (i) Goods on counters and on shelves in sales areas.                                                                                     
180,000
                  (6,000 + 4,000 – 4,200) (b) P780,000 (d) P696,000 
(j) Items in the receiving section of the storeroom were excluded from the count because they had 
   
been sold to customers and then returned (in resalable condition).                                                                   
  Computations: 200

29
 Emerald Company                       Net 30                                    225,000
Fucshia Company                        Net 30                                         -
Gold Company                            Net 30                                         -
                                                                                                  P 1,000,000
Additional information is as follows: 
1. Parts held on consignment from Crimson to Amber, the consignee, amounting to P155,000, were not
included in the physical count of goods in Amber's warehouse on December 31, 2014 and in accounts payable
at December 31, 2014. 
2. P22,000 of parts which were purchased from Fuchsia and paid for in December 2014 were sold in the last
Total - Correct inventory valuation at December 31, 2014                                      week of 2014 and appropriately recorded as sales of P28,000. The parts were included in the physical count of
  Merchandise Inventory goods in Amber's warehouse on December 31, 2014 because the parts were on the laoding dock waiting to be
picked up by customers. 
Valuation
3. Parts in transit on December 31, 2014 to customers, shipped FOB shipping point on December 31, 2014,
    P200,000 amounted to P34,000. The customer received the parts on January 7,2015. Sales of P40,000 to the customers
for the parts were recorded by Amber on January 2, 2014. 
  (a)                        –
4. Retailers were holding P210,000 at cost (P250,000 at retail) of goods on consignment from Amber, the
  (b) 800 consignor, at their stores on December 31, 2014. 
  (c) 1,800 5. Goods were in transit from Gold to Amber on December 31, 2014. The cost of goods was P25,000, and they
were shipped FOB shipping point on December 29, 2014. 
  (d)                        –
6. A quarterly freight bill in the amount of P2,000 specifically relating to merchandise purchases in December
  (e)                        –
2014, all of which was still in the inventory at December 31, 2014, was received on January 4, 2015. The
  (f) 600 freight bill was not included in either the inventory or in accounts payable at December 31, 2015. 

  (g)                        – 7. All of the purchases from Blue occurred during the last seven days of the year. These items have been
recorded in accounts payable and accounted for in the physical inventory at cost before discount. Amber's
400 policy is to pay invoices in time to take advantage of all cash discounts, adjust inventory accordingly, and
  record accounts payable, net of cash discounts. 
How much is the amount of adjusted sales? 
  (i) 180,000
  (j)          200                                        Inventory             Accounts Payable     Sales

  Total                      P383,800 Initial amounts P1,250,000 P1,000,000 P9,000,000

Adjustments
   Increase (Decrease)
The correct answer is: 383800 1.                         P (155,000) P (155,000)              None
Question 6
The Amber Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from 2.                             (22,000)               None                      None
Amber's accounting records are as follows: 
3.                                       None                       None      P     40,000
Inventory at December 31, 2014 (based on physical count of goods in Amber's warehouse on December 31,
2014)                                    P 1,250,000 4.                            210,000               None                      None

Sales in 2014                                                                                                                                                          5.                              25,000     25,000                      None

P 9,000,000
6.                                2,000       2,000                      None
Accounts Payable at December 31, 2014: 
7.  (P265,000 x 2%)              (5,300)          (5,300)      None
Vendor                                             Terms                                 Amount
Total adjustments         P     54,700          P   (133,300) P     40,000
Blue Company                        2% 10 days, net 30                  P 265,000
Adjustment amounts P 1,304,700    P     866,700         P9,040,000
Crimson Company                        Net 30                                  210,000
Dark Brown Company                  Net 30                                   300,000 The correct answer is: 9040000

30
 Net Sales (sales less sales returns)                                                                                                                       
8,500,000
Additional Information is as follows:
1. Included in the physical count were tools billed to a customer FOB shipping point on December 31, 2014.
These tools had a cost of P28,000 and had been billed at P35,000. The shipment was on Centennial's loading
dock waiting to be picked up by the common carrier. 
2. Goods were in transit from a vendor to Centennial's on December 31, 2014. The invoice cost was P50,000,
and the goods were shipped FOB shipping point on December 29, 2014. 
3. Work-in-process inventory costing P20,000 was sent to an outside processor for plating on December 30,
2014. 
4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2014
Question 7
were not included in the physical count. On January 8, 2015, the tools costing P26,000 were inspected and
The records of a company showed the following for June: 
returned to inventory. Credit memos totaling P40,000 were issued to the customers on the same date. 
Sales                                 4,200 units at P200 each
5. Tools shipped to a customer FOB destination on December 26, 2014 were in transit at December 31, 2014
Purchases                         4,000 units at P150 each and had a cost of P25,000. Upon notification of receipt by the customer on January 2, 2015, Centennial issued
a sales invoice for P42,000. 
Beginning inventory         6,000 units at P100 each
6. Goods with an invoice cost of P30,000, received from a vendor at 5:00pm on December 31, 2014, were
Assuming the periodic inventory system is used, how much is the ending inventory using the FIFO recorded on a receiving report dated January 2, 2015. The goods were not included in the physical count, but
method?  the invoice was included in accounts payable at December 31, 2014. 

  FIFO Average   7. Goods received from a vendor on December 26, 2014 were included in the physical count. However, the
related P60,000 vendor invoice was not included in accounts payable at December 31, 2014, because the
  (1)   Sales (4,200 units x P200) P840,000 P840,000  accounts payable copy of the receiving report was lost. 
  (2)   Cost of goods sold (a) P420,000 (c) P504,000  8. On January 4, 2014, a monthly freight bill in the amount of P4,000 was received. The bill specifically related
to merchandise purchased in December 2014, one-half of which was still in the inventory at December 31,
  (3)   Gross margin (1) – (2) P420,000 P336,000  2014. The freight charges were not included in either the inventory or in accounts payable at December 31,
  (4)   Ending inventory      2014. 

                  (6,000 + 4,000 – 4,200) (b) P780,000 (d) P696,000  What is the adjusted amount for inventory? 

   
CENTENNIAL CORPORATION
  Computations:
  Adjustments to Initial Amounts
  (a)   4,200 x P100  =  P420,000
  As of December 31, 2014
  (b)   (4,000 x P150)  +  (1,800 x P100)  =  P780,000
   
  (c)   [(4,000 x P150)  +  (6,000 x P100)] / 10,000  =  P120 x 4,200  =  P504,000
    Accounts Payable Net
  (d)   5,800  x  P120  =  P696,000  
Inventory Sales
  Initial amounts    P1,750,000    P1,200,000    P8,500,000

The correct answer is: 780000   Adjustments      

Quiz 4.1, Inventories   [Increase (decrease)]      
  1 None None     P   (35,000)
Question 1
Centennial Corporation, a manufacturer of small tools, provided the following information from its accounting   2    P     50,000    P     50,000 None
records for the year ended December 31, 2014: 
  3            20,000 None None
Inventory at December 31, 2014 (based on physical count of goods in Centennial's plant at cost on December
31, 2014)                            1,750,000   4            26,000 None          (40,000)

Accounts Payable at December 31, 2014                                                                                                                5            25,000 None None

1,200,000
  6            30,000 None None
  7 None            60,000 None
31
 CENTENNIAL CORPORATION
  8              2,000              4,000            None   
  Total adjustments    P   153,000    P   114,000    P    (75,000)
  Adjustment amounts    P1,903,000    P1,314,000    P8,425,000

The correct answer is: 1903000

Question 2
Centennial Corporation, a manufacturer of small tools, provided the following information from its accounting
records for the year ended December 31, 2014: 
Inventory at December 31, 2014 (based on physical count of goods in Centennial's plant at cost on December
31, 2014)                            1,750,000
Accounts Payable at December 31, 2014                                                                                                             
1,200,000
Net Sales (sales less sales returns)                                                                                                                       
8,500,000
Additional Information is as follows:
1. Included in the physical count were tools billed to a customer FOB shipping point on December 31, 2014.
These tools had a cost of P28,000 and had been billed at P35,000. The shipment was on Centennial's loading
dock waiting to be picked up by the common carrier. 
2. Goods were in transit from a vendor to Centennial's on December 31, 2014. The invoice cost was P50,000,
and the goods were shipped FOB shipping point on December 29, 2014. 
3. Work-in-process inventory costing P20,000 was sent to an outside processor for plating on December 30,
2014. 
4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2014
were not included in the physical count. On January 8, 2015, the tools costing P26,000 were inspected and
returned to inventory. Credit memos totaling P40,000 were issued to the customers on the same date. 
5. Tools shipped to a customer FOB destination on December 26, 2014 were in transit at December 31, 2014
and had a cost of P25,000. Upon notification of receipt by the customer on January 2, 2015, Centennial issued
a sales invoice for P42,000. 
6. Goods with an invoice cost of P30,000, received from a vendor at 5:00pm on December 31, 2014, were
recorded on a receiving report dated January 2, 2015. The goods were not included in the physical count, but
the invoice was included in accounts payable at December 31, 2014. 
7. Goods received from a vendor on December 26, 2014 were included in the physical count. However, the
related P60,000 vendor invoice was not included in accounts payable at December 31, 2014, because the
accounts payable copy of the receiving report was lost. 
8. On January 4, 2014, a monthly freight bill in the amount of P4,000 was received. The bill specifically related
to merchandise purchased in December 2014, one-half of which was still in the inventory at December 31,
2014. The freight charges were not included in either the inventory or in accounts payable at December 31,
2014. 
What is the adjusted amount for accounts payable? 

32
  Adjustments to Initial Amounts
  As of December 31, 2014
   
    Accounts Payable Net
 
Inventory Sales
  Initial amounts    P1,750,000    P1,200,000    P8,500,000
  Adjustments      
  [Increase (decrease)]      
  1 None None     P   (35,000)
  2    P     50,000    P     50,000 None
  3            20,000 None None Centennial Corporation, a manufacturer of small tools, provided the following information from its accounting
records for the year ended December 31, 2014: 
  4            26,000 None          (40,000)
Inventory at December 31, 2014 (based on physical count of goods in Centennial's plant at cost on December
  5            25,000 None None 31, 2014)                            1,750,000
  6            30,000 None None Accounts Payable at December 31, 2014                                                                                                             
  7 None            60,000 None 1,200,000

  8              2,000              4,000            None    Net Sales (sales less sales returns)                                                                                                                       
8,500,000
  Total adjustments    P   153,000    P   114,000    P    (75,000)
Additional Information is as follows:
  Adjustment amounts    P1,903,000    P1,314,000    P8,425,000
1. Included in the physical count were tools billed to a customer FOB shipping point on December 31, 2014.
These tools had a cost of P28,000 and had been billed at P35,000. The shipment was on Centennial's loading
The correct answer is: 1314000 dock waiting to be picked up by the common carrier. 
2. Goods were in transit from a vendor to Centennial's on December 31, 2014. The invoice cost was P50,000,
and the goods were shipped FOB shipping point on December 29, 2014. 
3. Work-in-process inventory costing P20,000 was sent to an outside processor for plating on December 30,
2014. 
4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2014
were not included in the physical count. On January 8, 2015, the tools costing P26,000 were inspected and
returned to inventory. Credit memos totaling P40,000 were issued to the customers on the same date. 
5. Tools shipped to a customer FOB destination on December 26, 2014 were in transit at December 31, 2014
and had a cost of P25,000. Upon notification of receipt by the customer on January 2, 2015, Centennial issued
a sales invoice for P42,000. 
6. Goods with an invoice cost of P30,000, received from a vendor at 5:00pm on December 31, 2014, were
recorded on a receiving report dated January 2, 2015. The goods were not included in the physical count, but
the invoice was included in accounts payable at December 31, 2014. 
7. Goods received from a vendor on December 26, 2014 were included in the physical count. However, the
related P60,000 vendor invoice was not included in accounts payable at December 31, 2014, because the
accounts payable copy of the receiving report was lost. 
8. On January 4, 2014, a monthly freight bill in the amount of P4,000 was received. The bill specifically related
to merchandise purchased in December 2014, one-half of which was still in the inventory at December 31,
2014. The freight charges were not included in either the inventory or in accounts payable at December 31,
2014. 
What is the adjusted amount for sales? 

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 CENTENNIAL CORPORATION The correct answer is:have no effect on total current assets
Question 3
  Adjustments to Initial Amounts Concorde Company uses the allowance method of accounting for uncollectible accounts. During 2014,
  As of December 31, 2014 Concorde had charged to bad debt expense P5,000 Concorde's working capital (current assets - current
liabilities) would be increased (decreased) by: 
   
    Accounts Payable Net 5,000
 
Inventory Sales (4,400)

  Initial amounts    P1,750,000    P1,200,000    P8,500,000 (5,000)

  Adjustments       4,400

  [Increase (decrease)]       The correct answer is:(5,000)

  1 None None     P   (35,000)

  2    P     50,000    P     50,000 None
  3            20,000 None None Question 4
Accounts receivable appear in the statement of financial position: 
  4            26,000 None          (40,000) as current assets, immediately after cash and cash equivalents
  5            25,000 None None only if the statement of financial position method of estimating uncollectible accounts is used. 
  6            30,000 None None as current assets, combined with cash and cash equivalents
  7 None            60,000 None as either current assets or noncurrent assets, depending on whether the allowance method or the direct write-
off method is used to account for uncollectible accounts. 
  8              2,000              4,000            None   
The correct answer is:
  Total adjustments    P   153,000    P   114,000    P    (75,000)
as current assets, immediately after cash and cash equivalents
  Adjustment amounts    P1,903,000    P1,314,000    P8,425,000

Question 5
The correct answer is: 8425000 Which of the following accounting principles primarily supports the use of allowance for doubtful accounts? 
Quiz 3.1, Accounts Receivable Matching principle
Going concern principle
Question 1
Which of the following statements is incorrect?  Continuity principle
If the estimate of bad debt expense is made on the basis of net credit sales, an entry is made each period to
Cost principle
the account, "Allowance for Doubtful Accounts," without regard to the prior balance in that account. 
Full disclosure principle
If the estimates of bad debt expense is made on the basis of net realizable value of the accounts receivable,
the balance of the account, "Allowance for Doubtful Accounts," is adjusted so that the adjusted balance reflects The correct answer is:
the computed amount needed to properly value the receivables.  Matching principle
Question 6
If credit terms to customers were 2/10, n/30, a two-percent discount will be granted if payment is made within
The allowance method of recognizing bad debt expense can be applied in more than one way. What two
10 days of the date of sale. 
conditions must be met before the allowance method can be used? 
If the allowance for doubtful accounts has been underestimated, a sale of the total related receivables to a bad debts must be relevant and reliable
factor is more likely to result in a gain than in a loss. 
bad debts must be consistent over time and the method used to estimate them must be consistently applied
The correct answer is:If the allowance for doubtful accounts has been underestimated, a sale of the total
bad debts must be probable and estimable
related receivables to a factor is more likely to result in a gain than in a loss. 
Question 2 bad debts must be expected and material. 
Scotch Company, which has an adequate amount in its Allowance for Doubtful Accounts, write off as
uncollectible an account receivable from a bankrupt customer. This action will:  The correct answer is:bad debts must be probable and estimable
reduce net income for the period Question 7
The entry
have no effect on total current assets
Accounts Receivable                 xxx
reduce the amount of owner's equity
           Allowance for Uncollectible Accounts xxx
reduce total current assets

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would be made when increase the allowance for doubtful accounts.
Question 12
Lopez Inc. had accounts receivable of P200,000 and an allowance for doubtful accounts of P8,500. The
a previously defaulted customer pays its outstanding balance. amortized cost of the accounts receivable was
a customer pays its account balance. 191,500

estimated uncollectible receivables are too low. 200,000

a customer defaults on its account. 208,500

The correct answer is:a previously defaulted customer pays its outstanding balance. 192,500
Question 8 The correct answer is:
Which of the following statements is true?  192,500
The sole justification for providing for doubtful accounts is conservatism.  Question 13
Trade accounts receivable are the only asset on which bad debt expense can be incurred.  Which of the following should be recorded in Accounts Receivable?
Receivables from subsidiaries
Provision for bad debt losses on trade notes receivable is usually included in computing the balance of
"Allowance for Doubtful Accounts." Dividends receivable

Methods of estimating bad debts based upon collectibility of accounts receivable emphasize the income Receivables from officers
statement rather than the statement of financial position.  None of these
The correct answer is:Provision for bad debt losses on trade notes receivable is usually included in computing The correct answer is:
the balance of "Allowance for Doubtful Accounts." None of these
Question 9 Question 14
Uncollectible accounts expense:  When individual customers' accounts have credit balances of material amounts, these amounts: 
should not occur if the credit department properly investigates prospective customers who wish to purchase Maybe deducted from the debit balance in other customers' accounts on the statement of financial position. 
merchandise on credit
Should be omitted from the statement of financial position. 
is the amount a business must pay to a collection agency to recover amounts on overdue accounts receivable
Must be reported (or disclosed) separately in the liability section of the statement of financial position. 
represents the loss in the value of accounts receivable which eventually turn out to be uncollectible. 
may be shown as "credit balances of customer's accounts" in the current assets section. 
is the amount of cash a business must pay each time a credit customer fails to pay his or her account. 
The correct answer is:
The correct answer is:represents the loss in the value of accounts receivable which eventually turn out to be Must be reported (or disclosed) separately in the liability section of the statement of financial position. 
uncollectible.  Question 15
Question 10 When comparing the allowance method of accounting for bad debts with the direct write-off method, which of
Which of the following statements is correct?  the following is true?
The net realizable value of the total amount of accounts receivable is defined as the gross amount billed to The direct write-off method is theoretically superior.
customers less any cash and trade discounts. 
The direct write-off method is exact and also better illustrates the matching principle.
An estimate of bad debt expense based upon credit sales rather that total sales will likely be more in conformity
with the matching principle.  The direct write-off method requires two separate entries to write off an uncollectible account.
When a specified bad debt which has already been written off is later collected, sales revenue is increased by The allowance method is less exact but it better illustrates the matching principle.
the amount of the recovery. 
The correct answer is:
The primary accounting principle supporting the use of the allowance for doubtful accounts is the cost The allowance method is less exact but it better illustrates the matching principle.
principle.  Question 16
A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the
The correct answer is: allowance method based on
An estimate of bad debt expense based upon credit sales rather that total sales will likely be more in conformity credit sales.
with the matching principle. 
Question 11 aging the trade receivable accounts.
When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of a
small account previously written off would direct write-off.
decrease the allowance for doubtful accounts. specific accounts determined to be uncollectible.
increase the allowance for doubtful accounts. The correct answer is:aging the trade receivable accounts.
decrease net income. Question 17
When the allowance method of recognizing bad debt expense is used, the entry to record the write-off of a
increase net income. specific uncollectible account would decrease
net income.
The correct answer is:

35
net realizable value of accounts receivable. 1,034,000
allowance for doubtful accounts. 1,140,000
working capital. 1,154,000
The correct answer is:allowance for doubtful accounts. The correct answer is:1,094,000
Question 18 Question 23
When a specific customer's account is written off by a company using the allowance method, the effect on net Which of the following is incorrect?
income and the net realizable value of the accounts receivable is The operating cycle sometimes is longer than one year in duration.
                  Net Realizable Value The operating cycle always is one year in duration.
Net Income              of Accounts Receivable The operating cycle sometimes is shorter than one year in duration.
The operating cycle is a concept applicable both to manufacturing and retailing enterprises.
       a.  None              None The correct answer is:The operating cycle always is one year in duration.
Question 24
       b.  Decrease          Decrease The category "trade receivables" includes
       c.  Increase          Increase none of these.

       d.  Decrease          None income tax refunds receivable.

claims against insurance companies for casualties sustained.
The correct answer is:a advances to officers and employees.
Question 19
Which of the following would be classified as trade receivable?  The correct answer is:none of these.
Cash dividends receivable
Question 25
Amounts due from customers Dec Company uses the statement of financial position approach in estimating uncollectible accounts expense. The company
prepares an adjusting entry to recognize this expense at the end of each month. During the month of July, the company wrote
Loans to employees off a P1,000 receivable and made no recoveries of previous write-offs. Following the adjusting entry for July, the credit balance
in the Allowance for Doubtful Accounts was P2,500 larger than it was on July 1. What amount of uncollectible account expense
Claims in litigation was recorded for July? 
The correct answer is:3,500
The correct answer is:Amounts due from customers Quiz 3.2, Notes Receivable
Question 20
When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific
customer account would Question 1
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
increase the accounts receivable balance and increase net income. 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?
decrease the accounts receivable balance and decrease net income.
Normal selling price with credit period of one month       120,000
have no effect on net income.
Discount for cash on delivery       (10,000)
increase net income.
     
The correct answer is:decrease the accounts receivable balance and decrease net income. Cash price equivalent of the goods sold
110,000
Question 21
At December 31, before adjusting and closing the accounts had occurred, the Allowance for Doubtful Accounts
The correct answer is: 110000
of Wise Corporation showed a debit balance of P5,300. An aging of the accounts receivable indicated the
amount probably uncollectible to be P3,900. Under these circumstances, a year-end adjusting entry for Question 2
uncollectible accounts expense would include a:  On January 1, 20x1, ABC Co. sold a transportation equipment with a historical cost of ₱1,000,000 and accumulated
debit to Uncollectible Accounts Expense, P9,200. 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%.
credit to the Allowance for Doubtful Accounts for P1,400
            Cash                                                    100,000
debit to the Allowance for Doubtful Accounts for P1,400
            Notes Receivable                               800,000
debit to Uncollectible Accounts Expense, P3,900. 
            Accumulated Depreciation                 300,000
The correct answer is:debit to Uncollectible Accounts Expense, P9,200.             Loss on Sale of Equipment                  30,576
Question 22
Prior to adjustments, SPF's Company account balance at December 31, 2014 for Accounts Receivable and the                                     Transportation Equipment                  1,000,000
related Allowance for Doubtful Accounts were P1,200,000 and P60,000, respectively. An aging of accounts                                     Unearned Interest Income                      230,576                
receivable may be uncollectible. The amortized cost of accounts receivable was
1,094,000
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  How much is the interest income in 20x1? Cash Received                                   100,000

569,424 x 12% = 68,331 Present Value                                     569,424

Initial measurement: 800,000 x PV of 1 (Table 2) 0.71178 @12%, n=3 = 569,424 (Present Value) Sales Price                                         669,424

Unearned Interest Income: (800,000 – 569,424) = 230,576  Carrying Amount

            Interest Receivable                    68,331 (1,000,000 – 300,000)                        700,000

                        Interest Income                         68,331  Loss on Sale of Equipment                  30,576

Subsequent measurement:
Date  Interest income  Unearned interest  Present value The correct answer is: 714287
Question 4
1/1/x1 230,576 569,424 On January 1, 20x1, ABC 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
12/31/x1 68,331 162,245 637,755 installments starting on December 31, 20x1 and every December 31 thereafter. The prevailing rate of interest for this type of
note is 12%. 
12/31/x2 76,531 85,714 714,286
Cash                                                               500,000
12/31/x3 85,714 - 800,000
Notes Receivable                                         8,000,000
Cash Received                                   100,000 Accumulated Depreciation                          7,000,000
Present Value                                     569,424 Loss on Sale of Equipment                          6,425,301
Sales Price                                         669,424                                     Transportation Equipment                  20,000,000
Carrying Amount                                     Unearned Interest Income                   1,925,301
(1,000,000 – 300,000)                        700,000
How much is the interest income in 20x1?
Loss on Sale of Equipment                  30,576
Answer:
Feedback
The correct answer is: 68331 Cash Received                                   500,000
Question 3 Present Value                                  6,074,699
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 Sales Price                                      6,574,699
January 1, 20x4. The prevailing rate of interest for this type of note is 12%.
Carrying Amount
            Cash                                                    100,000
(20,000,000 – 7,000,000)              13,000,000
            Notes Receivable                               800,000
Loss on Sale of Equipment             6,425,301
            Accumulated Depreciation                 300,000

            Loss on Sale of Equipment                  30,576

The correct answer is: 728963.88
                                    Transportation Equipment                  1,000,000

                                    Unearned Interest Income                      230,576                

 
How much is the carrying amount of the receivable on December 31, 20x2?
Question 5
On January 1, 20x1, ABC 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%. 

Cash                                                               500,000

Notes Receivable                                         8,000,000

Accumulated Depreciation                          7,000,000

Loss on Sale of Equipment                          6,425,301

                                    Transportation Equipment                  20,000,000

                                    Unearned Interest Income                   1,925,301

How much is the current portion of the receivable on December 31, 20x1?

37
Notes receivable, 20x1 (8,000,000 – 2,000,000)                  6,000,000

Unearned Interest Income (1,925,301 – 728,964)               1,196,337                   

Carrying Amount                                                                4,803,663

Current portion (2,000,000 – 576,440)                         1,423,560

Noncurrent portion                                                        3,380,102

Cash Received                                   500,000

Present Value                                  6,074,699

Sales Price                                      6,574,699

Carrying Amount

(20,000,000 – 7,000,000)              13,000,000

Loss on Sale of Equipment             6,425,301

The correct answer is: 1423560

Question 6
On January 1, 20x1, ABC 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%. 

Cash                                                               500,000

Notes Receivable                                         8,000,000

Accumulated Depreciation                          7,000,000

Loss on Sale of Equipment                          6,425,301

                                    Transportation Equipment                  20,000,000

                                    Unearned Interest Income                   1,925,301

How much is the carrying amount of the receivable on December 31, 20x2?

Cash Received                                   500,000

Present Value                                  6,074,699

Sales Price                                      6,574,699

Carrying Amount

(20,000,000 – 7,000,000)              13,000,000

Loss on Sale of Equipment             6,425,301

The correct answer is: 3380103

38