THEORY OF ACCOUNTS 1. In calculating the carrying amount of loan receivable, the lender adds to the principal I.

Direct origination cost II. Indirect origination cost III. Origination fee charged to borrower a. I only c. I and III only b. I and II only d. I, II, and III 2. Subsequent to initial recognition, a loan receivable shall be measured at a. Cost c. Amortized cost using the effective b. Amortized cost using the straight interest method line method d. Fair value 3. If there is evidence that an impairment loss on a loan receivable has been incurred, the loss is equal to the a. Excess of the carrying amount of the loan receivable over the present value of the cash flows related to the loan b. Excess of the present value of cash flows related to the loan over the carrying amount of the loan receivable c. Excess of the carrying amount of the loan over the principal amount of the loan d. Excess of the principal amount of the loan over its carrying amount. 4. ABC Bank loaned an amount on January 1, 2013, the proceeds of which will be used to finance its planned expansion in the latter half of the year. The carrying amount of the loan on initial recognition exceeded the proceeds received. Which of the following situations could have caused this? a. The direct origination costs incurred were less than the origination fees charged. b. The indirect origination costs incurred, which were less than the loan origination fees charged, were more than the direct origination costs incurred. c. The origination fees charged were less than the direct origination costs incurred. d. The origination fees charged were more than the indirect origination costs incurred. The indirect origination costs incurred were more than the direct origination costs incurred. 5. XYZ Bank entered into contract of loan on December 31, 2013, with a face amount of 5,000,000 and interest of 12% payable annually every January 1 thereafter, starting January 1, 2014, for 5 years. At the end of 2015, the creditor began to experience financial difficulties and was unable to repay the required interest payment. XYZ forgave the interest on the loan as the collection is unlikely, but the principal amount will be due in installments of 1,000,000 at each interest payment date. What time value of money concept must XYZ Bank use to compute the present value of remaining cash flows? a. Present value of 1 c. Present value of an annuity due of b. Present value of an ordinary 1 annuity of 1 d. Future value of 1 6. A note receivable bearing a reasonable interest rate is sold to a bank with recourse. The note receivable discounted account was appropriately credited. The note receivable discounted accounted should be reported as a. Contra-asset account for the proceeds from the discounting transaction b. Contra-asset account for the face amount of the note c. Liability account for the proceeds from the discounting transaction d. Liability account for the face amount of the note 7. If receivables are hypothecated against borrowings, the amount of receivables involved should be a. Disclosed in the notes b. Excluded from the total receivables with disclosure c. Excluded from the total receivables with no disclosure d. Excluded from the total receivables and a gain or loss recognized between the face value and the amount of borrowings. 8. After being held for 30 days, a 120-day 12% interest-bearing note receivable was discounted at a bank at 15%. The amount received from the bank is equal to a. Maturity value at 15% less discount at 12% b. Maturity value at 12% less discount at 15% c. Maturity value at 12% less discount at 12% d. Maturity value at 15% less discount at 15%

The bank considered the loan impaired and projected the cash flows from the loan on December 31.16%. the effective rate on the loan is 6. The transferee can pledge or sell the transferred receivables. The terms of the loan were payment in full on January 1.620. 2017 Amount projected on 12/31/13 P 810.000 1.000. PROBLEM 3. the borrower was unable to make its 2013 interest payment. (Journal Entries) The Voice Bank loaned a borrower P3.000 130. 2016. 2016. 2014. (Journal Entries) The Voice Bank loaned a borrower P5. plus annual interest payment at 12%. The transferred receivables are beyond the reach of the transferor and its creditors.97%.000. Data related to the loan are: Principal amount Origination fees charged Direct origination cost incurred P 5. (Journal Entries) Cozy Bank loaned a borrower P12. b. 2015 December 31. and 2015.000. The interest payment was made as scheduled on January 1. starting December 31.000 on January 1. payable in 3 years plus 8% annual interest. due to financial setbacks.480. 2012. However. 2013. 2014 December 31. payable in 3 years plus 8% annual interest.000 Prepare the entries for 2013. a. The transferor maintains continuing involvement d. starting December 31. 2013. 2013. PROBLEM 1. and 2015. Data related to the loan are: Principal amount Origination fees charged Direct origination cost incurred Indirect origination cost incurred P 3.000 250.150.240. The transferor has not kept effective control over the transferred receivables through a repurchase agreement c. 2014. and 2017.000 on January 1.000 65. . 2014. The projected cash flows are: Date of cash flow December 31. All but one of the following are required before a transfer of receivables can be recorded as a sale.000 After considering the origination fees charged to the borrower and the direct origination cost incurred. The effective rate after impairment would be 14%. the effective rate on the loan is 9.000 3.000 on January 1. but did not continue to accrue interest for 2013 due to the impairment of the loan.000 500. Prepare all indicated entries for 2013. PROBLEM 2.000 After considering the origination fees charged to the borrower and the direct origination cost incurred.9. 2012. Round off PV to 2 decimal places. 2011.000. The bank accrued the interest on December 31. 2016 December 31. Prepare all indicated entries for 2013.000 6.700 280. 2015.

531. However. Durable Bank has a loan receivable of P6.000 c.000 Loan Receivable 6. 3. Round off PV factors to 3 decimal places. The borrower made the required payments during 2012 and 2013.000 Impairment Loss 9. The first principal and interest payment is due on January 1. 2011. 2018. What is the carrying amount of the loan receivable on December 31.000 on January 1.000.000.000 Loan Receivable 9. 2013. PROBLEM 5. Loan Receivable 9. declares bankruptcy.000 b.780.000 b.750.290. 2013 but informed the bank that it would probably miss the next two years’ interest payments because of financial difficulty. The borrower paid the interest due on December 31. The terms of the loan require principal payments of P2. 4. from a borrower that it is carrying at face value and is due on December 31. 2014 and P3.000 d. Loan Recovery Expense 6. 2.000.000. What is the interest income for 2014? a.000 3. 4. Which of the following entries would Harrison make to record the impairment under IFRS? a. with interest paid for that additional year at the time of payment. during 2013 the borrower began to experience financial difficulties. 2010.PROBLEM 4.122.000 each year for 5 years plus interest at 10%.310.000 c. P2.741.000 on January 1. the borrower. the bank has determined that the remaining principal payment will be collected but the collection of the interest is unlikely. 1.000 d.000. and Harrison estimates that it will collect only 60% of the loan balance.000. On January 3. Round off present value factors to two decimal places.000 2. 1. Interest on the loan is payable at 7% each December 31. 500. The principal payments are expected to be P1. After that.000 to a borrower on January 1. 2013. Harrison Company has a loan receivable with a carrying value of P15. 600.000 . 2015. 1.000 d.000.000 b. 1. 431. What is the loan impairment loss on December 31. 2013.000 at December 31. the borrower is expected to resume its annual interest payment but it would make the principal payment one year late. On December 31.000 Loan Receivable 6.000 on January 1.000 PROBLEM 6. 2014? a.000 d. requiring the bank to reassess the collectability of the loan. The bank accrued the interest for 2013.000 c. 2011. Impairment Loss 9. 2012.180. Prepare all entries from 2013 to 2019.000 c. Knowhow Bank loaned P10. 5.000. Thomas Clark Imports. (Journal Entries) On December 31. 1. 2013? a.000 b. Impairment Loss 6.

PROBLEM 7. 1.000. 2013.000 2. 12% note dated August 31.630 b.000.000 3. 1.500 b. 498. Assume that on January 5. What amount was initially received by Brawny Company from the factoring? a. 23. 270. 2013.000 of accounts receivable to a finance entity on July 1 of the current year. the factor charged 15% interest computed on a weighted average time to maturity of the accounts receivable of 30 days. Control was surrendered by Brawny Company. which of the following entries would be made on January 5. Breakout Company remitted the collections to the bank in payment for the interest accrued on December 31. d. Breakout Company assigned specific accounts receivable totaling P2. 2013? a. No journal entry is allowed under IFRS.000 b. 898.500 c.000 as collateral on a P1. 450.000.000.000. 12% note from a certain bank.900. 6. Under IFRS.370 b. Breakout Company will continue to collect the assigned accounts receivable. 2013.370 c. 2. 7.500 will be repaid on the loan. Bad Debt Expense 1.000 c.701. 0 . In addition to the interest on the note. The factor assessed a fee of 5% and retained a holdback equal to 10% of the accounts receivable.500 d. 500.2.500.500 Recovery of Impairment Loss 1.000. 1.000 value of the note.000 d. What amount of cash was received from the assignment of accounts receivable on December 31. Assuming all receivables are collected. On September 30. 2013 and the note payable.500.000 c. 730. 1.630 d. Harrison learns that Thomas Clark Imports has emerged from bankruptcy.800.000 b. 400. what amount should be reported as loss on note receivable discounting? a.000 PROBLEM 8.000 c. 500.425. What amount should be disclosed as the equity of Breakout Company in assigned accounts on December 31. In the income statement for the year ended September 30. What is the carrying amount of note payable on December 31. On December 31.000. 2013. 435. 98. Tender Company accepted from a customer a P4.000 d.000 b. 6.000. In addition. 2012. 565.000 d.000 b. However.000 2.500 Recovery of Impairment Loss 4. Loan Receivable 1. 17. 2012? a.000 d. 6. the entity discounted without recourse the note at 15%.700.000 less cash discount of P50. On December 1. Loan Receivable 4. 40. the proceeds were not received until October 1. As a result. 2013? a. 2013? a.000 c. The December collections of the assigned accounts receivable amounted to P1. 90-day. the bank also charged a 5% finance fee deducted in advance on the P1. Brawny Company factored P8.000 c.500. what is the cost of factoring? a. 550. 2013.000.501. 2013. Harrison now estimates that all but P1.500 Impairment Loss 1. 1.630 PROBLEM 9.

1.033.000 d.000. factors P2.350 and wrote off assigned accounts totaling P2. 1. assigned P400. P327.000. debit to Accounts Receivable of P114.980. 2.42% d. P328.00% c.300. the interest rate on the note was 10%. During the first month.000 d. debit to Bad Debt Expense of P2. Mark accepted returns worth P1.980. d.000 one-year note at a bank. Loss of P375. PROBLEM 13. b.710.000. non-interest bearing. In recording the note in the statement of financial position prior to maturity.000.033.000 c. 2013. 2013.000 to Jessie Company. 8. On February 1.380.500.000. Kwik charged a 2% commission on the amount of the loan. Sun estimates the fair value of the recourse liability at P75. The discounting of the note receivable is accounted for as a conditional sale with recognition of a contingent liability.000. On November 1.000. P15.00% b.500. d. when the prime rate was 6%. 2. d. P335. Jessie Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. b. . debit to Cash of P110. 2. The loss to be reported is a.998. you are to determine the amount of loss on sale to be reported in the income statement of Vinson Company for February. c. P9. Sun Inc.333 b. Loss of P75. debit to Allowance for Doubtful Accounts of P2. What would be recorded as a gain (loss) on the transfer of receivables? a. 2. What amount of contingent liability should be disclosed in the financial statements for 2012? a.980. Entries during the first month would include a a. 0 c.333 b. as security for a loan of P335.PROBLEM 10. Assume that Vinson factors the receivables on a without recourse basis.000 of accounts receivable to Kwik Finance Co. The amount of cash Mark received from Kwik at the time of the transfer was a. b. Mark collected P110.750 PROBLEM 11. Gain of P175. 6. Loss of P100.000. b.000.050. Mark Co. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. 2010.050. 1. How much did Duress receive from the discounting transaction? a. what rate should be used for the recording of interest expense? a. P24. P2.000. Relative to this transaction. Undaunted Company discounted its own P5. 2. at a discount rate of 8%.000. c.000 note receivable maturing on January 31. c. P301.70% PROBLEM 12.000 of its accounts receivables without recourse for a finance charge of 5%. 8. 1. d. Vinson Company factored receivables with a carrying amount of P300. 0 2. P0. The recourse obligation has a fair value of P1.000. 6.000. PROBLEM 14.000.000 on assigned accounts after deducting P380 of discounts. Duress Company discounted with recourse at 10% a one-year.000. c. 2.

c. The customer paid the bank in full.500.500. Assume that Vinson factors the receivables on a with recourse basis. PROBLEM 16.000 paid by the customer in connection with the March 14 sale. January 1 March 1 July 1 The entity sold merchandise for P500. (Journal Entries) Prepare the necessary entries in the books of Walleye Company to record the following transactions.000. the entity collected the dishonored note in full plus 12% annual interest on the total amount due. P15.000 to a customer. P10. 2013. . P2.000. P9. 12% note dated April 5 from the customer. the entity paid the bank the amount due including protest fee and other charges of P10.500. FOB destination. assuming the discounting transaction is accounted for as a conditional sale. The 10% rate properly reflects the time value of money for this type of note. Machete Company sold land with carrying amount of P1.000.000. b. The bank discount rate is 12%. On October 1. P25. The loss to be reported is a. April 20 The note of the customer was discounted with the bank at 15%. PROBLEM 15. The entity discounted the note without recourse at its local bank at 15%. 2013. The face of the note was the amount of the invoice minus freight charge of P50.2. the entity discounted the note with recourse. June 4 Receipt of notification from the bank that the customer dishonored its note. On April 1. 10% note with face value of P2. March 14 Sale of merchandise. 2013.000. April 7 Receipt of a 60-day. July 4 Receipt of cash from the customer for the full amount of its indebtedness plus interest on the original face value. 2013. the maker dishonored the note receivable.000 accepting a note of P500.000 for six months with interest to be paid at maturity at 12%. The entity paid the bank the maturity value of the note plus protest fee of P10. Accordingly. The discounting transaction is accounted for as a secured borrowing. PROBLEM 17. n/30.000 in exchange for a 9-month. On December 31.050. 2/10. (Journal Entries) Prepare all entries in the books of Morale Company.000. d. (Journal Entries) On January 1.

A 8.000. A 4.000. A PROBLEM 7.000 500. D PROBLEM 11. A 2.000 400. B (JOURNAL ENTRIES) Date Particulars PROBLEM 1 1/1/13 Loans Receivable Cash Cash Unearned Interest Income Unearned Interest Income Cash 12/31/13 Cash Interest Income Unearned Interest Income Interest Income Cash Interest Income Unearned Interest Income Interest Income Cash Interest Income Unearned Interest Income Interest Income Cash Loans Receivable 6. C 5.000 73. 1. 1. C 2.000 500. C PROBLEM 9. C PROBLEM 5.910 400.000 400.000 80. B PROBLEM 6. D PROBLEM 12. A PROBLEM 13. 1.000. C 3.000 400. B 2. 1. C PROBLEM 8. 1. C 3.000 Credit 5.575 400. D 2. B PROBLEM 10.000 95. A 2. A 2.000 400.000 250. 1.575 73. 1. C 2. B 9. B 7.000 5.SUGGESTED ANSWERS 1. C PROBLEM 14.515 5. B Debit 5.000.910 80. D 2.515 95. B 3.000 12/31/14 12/31/15 .000 250.

000 5.451 658.500 3.PROBLEM 2 1/1/13 12/31/13 12/31/14 12/31/15 Loans Receivable Cash Cash Direct origination costs Direct origination costs Cash Indirect origination costs Cash Cash Interest Income Interest Income Direct origination costs Cash Interest Income Interest Income Direct origination costs Cash Interest Income Interest Income Direct origination costs Cash Loans Receivable Loan impairment loss Allowance for L/I Interest receivable Cash Loans Receivable Allowance for L/I Interest Income Cash Loans Receivable Allowance for L/I Interest Income Cash Loans Receivable Allowance for L/I Interest Income Cash Loans Receivable Allowance for L/I Interest Income Loan impairment loss Allowance for L/I Cash Interest Income Allowance for L/I Interest Income Allowance for L/I Interest Income 3.458.521 444.000 1.015.240.000 240.000 48.845 472.000 240.837 240.460 54.000 1.500 1.000 280.000 3.143.040.460 3.000.040.000 3.429 1.324 PROBLEM 3 12/31/13 12/31/14 12/31/15 12/31/16 12/31/16 PROBLEM 4 12/31/13 12/31/14 12/31/14 .000 130.000 658.000 6.480.740 1.000 810.880 6.000 65.000 970.620.000 65.500 472.000 46.500 412.620.240.451 856.000 1.000 240.015.700 280.324 444.000.000.480.700 130.000 3.880 970.845 856.003 46.003 240.740 1.429 3.000.521 412.000 54.000 240.837 48.685.000 810.

000 50.000 2.750.000.500 6.800 2.224.160.500 6.000 64.050.000.500 472.500 500.000 2.800 6/4/13 7/4/13 PROBLEM 17 1/1/13 4/1/13 10/1/13 12/31/13 .000.000 2.050.000 2.000 2.000.000.000 2.000 500.000.000 10.000 2.000 2.000 2.160.021.000 2.250 2.000 2.000.000 PROBLEM 15 1/1/13 3/1/13 7/1/13 PROBLEM 16 3/14/13 4/7/13 4/20/13 Note receivable Sales Cash Loss on discounting Note receivable Interest income No entry Accounts receivable Sales Note receivable Freight out Accounts receivable Cash Loss on discounting Note receivable discounted Interest income Accounts receivable Cash Note receivable discounted Note receivable Cash Accounts receivable Interest income Note receivable Land Gain on sale of land Cash Interest expense Liability for NRD Interest Income Accounts receivable Cash Liability for NRD Note receivable Cash Accounts receivable Interest income 2.000 20.500.000 2.000 10.750 8.050.160.000 500.000.12/31/15 To 12/31/18 12/31/19 Cash Interest Income Cash Interest Income Loans Receivable 472.000 2.000 29.000 2.070.000 1.050.050.222.000 50.050.000 503.500 472.000 2.000 209.000 2.000 500.000 2.500 7.

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