41.

Notes receivable discounted with recourse should be

Included in total receivables with disclosure of contingent liability.
Included in total receivables without disclosure of contingent liability.
Excluded in total receivables with disclosure of contingent liability.
Excluded in total receivables without disclosure of contingent liability.

42. Which of the following statements is correct?

The net realizable value of the total amount of accounts receivable is defined as the gross amount billed to
customers less any cash and trade discounts.
When a specified uncollectible account which has already been written off is later collected sales revenue is
increased by the amount of the recovery.
The primary accounting principle supporting use of the allowance for doubtful account is the cost principle.
An estimate of doubtful accounts expense based upon credit sales rather than total sales will likely be more
in conformity with the matching principle.

44. Which of the following statement is true?

Trade accounts receivable are the only asset on which doubtful accounts expense can be incurred.
The sole justification for providing for doubtful accounts is conservatism.
Methods of estimating doubtful accounts expense based upon the collectability of accounts receivable
emphasize the income statement rather than the balance sheet.
Provision for bad debt losses on trade receivable is usually included in computing the balance of
“allowance for doubtful accounts”.

45. Which of the accounting principles primarily supports the use of allowance for doubtful accounts?
Continuity principle
Full-disclosure principle
Matching principle
Cost principle

46. The allowance method of recognizing bed debt expense can be applied is more than one way. What
two conditions must be met before the allowance method can be used?
Bad debts must be expected and material.
Bad debts must be relevant and reliable
Bad debts must be probable and estimable
Bad debts must be consistent over time and the method used to estimate them must be consistently applied.

CASH & CASH EQUIVALENT

47. In connection with your audit of Mags Corporation for the year ended, December 31, 2010, you
gathered the following:

Current account at Metrobank P2,000,000

Current account at BPI ( 100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s postdated checks 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
NSF check 15,000
Money order 30,000
Petty cash fund ( P4,000 in currency and expense receipts for P6,000) 10,000
Treasury bills, due 3/3/11 (purchased 12/29/09) 200,000
Treasury bills, due 1/31/11 (purchased 2/1/10) 300,000

Based on the above information and the result of your audit, compute for the cash and cash
equivalent that would be reported in the December 31, 2010 balance sheet.
P2,784,000
P3,084,000
P2,790,000
P2,704,000

48. In the course of your audit of the Autumn Corporation, its controller is attempting to determine the
amount of cash to be reported on its December 31, 2010 balance sheet. The following information is
provided:

Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are
held at PS Bank.
Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse
through salary deduction).
A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt.
Petty cash fund of P10,000.
An IOU from a company officer in the amount of P40,000.
A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its cash receipts.
At the present time, the company has no deposits at this bank.
The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit have
maturity of 120 days.
Autumn has received a check dated January 2, 2011 in the amount of P150,000.
Autumn has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure future credit
availability.
Currency and coin on hand amounted to P15,000.

How much will be reported as cash and cash equivalent at December 31, 2010?
P3,025,000
P2,825,000
P2,575,000
P5,025,000