Edition 2014, Weygandt Et - Al, Pg. 9-6: Reference: Test Bank For Accounting Principles 8

8.
Interest is usually associated with

A. accounts receivable
B. notes receivable
C. doubtful accounts
D. bad debts
Answer: B
Reference: Test Bank for Accounting Principles 8th Edition 2014, Weygandt et.al, pg. 9-6
9. The receivable that is usually evidenced by a formal instrument of credit is a(n)

A. trade receivable
B. note receivable
C. accounts receivable
D. income tax receivable
Answer: B
10. Which of the following receivables would not be classified as an "other receivable"?
A. Advance to an employee
B. Refundable income tax
C. Notes receivable
D. Interest receivable
Answer: C
11. The sale of receivables by a business

A. indicates that the business is in financial difficulty.
B. is generally the major revenue item on its income statement.
C. is an indication that the business is owned by a factor.
D. can be a quick way to generate cash for operating needs.
Answer: D
12. The basic issues in accounting for notes receivable include each of the following except
A. analyzing notes receivable
B. disposing of notes receivable
C. recognizing notes receivable
D. valuing notes receivable
Answer: A
Reference: Test Bank for Accounting Principles 8 th Edition 2014, Weygandt et.al, pg. 9-18
13. As a form of receivable financing, discounting specifically pertains to notes receivable.

A. true
B. false
C. maybe
D. none of the above
Answer: A
14. Receivables might be sold to

A. lengthens the cash-to-cash operating cycle.
B. takes advantage of deep discounts on the cash realizable value of receivables.
C. generate cash quickly.
D. finance companies at an amount greater than cash realizable value.
Answer: C
15. A promissory note

A. is not a formal credit instrument.
B. may be used to settle an accounts receivable.
C. has the party to whom the money is due as the maker.
D. cannot be factored to another party.
Answer: B
16. Which of the following is not true regarding a promissory note?

A. Promissory notes may not be transferred to another party by endorsement.
B. Promissory notes may be sold to another party.
C. Promissory notes give a stronger legal claim to the holder than accounts receivable.
D. Promissory notes may be bearer notes and not specifically identify the payee by name.
Answer: A
17. The two key parties to a promissory note are the

A. maker and a bank
B. debtor and the payee
C. maker and the payee
D. sender and the receiver.
Answer: C
Problem I
Earth Company factored P4, 000,000 of accounts receivable without guarantee for a finance charge of
5%. The finance entity retained an amount equal to 10% of the accounts receivable for possible
adjustments.
Question 1: What would be recorded as a gain or loss on the transfer of accounts receivable?
A. 200, 000 loss
B. 200, 000 gain
C. 600, 000 loss
D. 600, 000 gain
Answer: B
Finance Charge 200,000
(4, 000,000 x 5%)
Reference: Receivable Financing Lecture for Discounting by Lailane Amoroto
Problem II
Crater Company factored with recourse P2, 000,000 of accounts receivable with a bank. The finance
charge is 3%, and 5% was retained to cover sales discounts, sales returns and sales allowances.
Question 1: What amount of cash was received on the sale of accounts receivable?
A. 1, 940,000
B. 1, 900,000
C. 1, 840,000
D. 2, 000,000
Answer: C
Accounts receivable factored 2, 000,000
Finance Charge (2, 000,000 x 3%) (60,000)
Holdbak (2, 000,000 x 5%) (100,000)
1, 840,000
Problem III
On August 31, 2015, Stable Company discounted with recourse a customer’s note at the bank at discount
rate of 15 %. The note was received from the customer on August 1, 2015, is for 90 days, has a face
value of P5, 000,000, and carries an interest rate of 12%. The customer paid the note to the bank on
October 30, 2015, the date of maturity.
Cash 5,021,250
Interest Expense 28,750
Liability for note receivable discounted 5,000,000
Interest Income 50,000
Question 1: What amount of cash was loss in discounting?
Answer: (28,750)
Principal 5, 000,000
Interest (5,000,000x 12%x 90/360) 150, 000
Maturity Value 5, 150, 000
Discount (5150,000x15%x60/360) 128, 750
Net Proceeds 5, 021, 250
Principal 5, 000, 000

Accrued interest receivable 50, 000
Carrying Amount 5, 050, 000
Net proceeds 5, 021, 250

Carrying amount 5, 050, 000
Loss on discounting (28, 750)
Problem IV
On June 30, 2015, Bosom Company discounted at the bank a customer’s P600, 000, 6 months, 10% note
receivable dated April 30, 2015. The bank discounted the note at 12%.
Question 1: What amount should be reported as proceeds from the discounted note?
A. 564, 000
B. 576, 000
C. 604, 800
D. 617, 400
Answer: C
Principal 600,000
Add: Interest 30,000
Maturity Value 630,000
Discount (630,000x12%x4/12) (25,200)
Net Proceeds 604,800
Problem V
On July 1, 2015, Karma Company sold equipment to a customer for P 1, 000,000. The entity accepted a
10% note receivable for the entire sale price. This note is payable in two equal installments of P500, 000
plus accrued interest on December 31, 2015 and December 31, 2016. On July 1, 2016, the entity
discounted the note at a bank at an interest rate of 12%.
Question 1: What is the amount received from the discounting of note receivable?
A. 484, 000
B. 493, 500
C. 503, 500
D. 517, 000
Answer: B
Principal 500, 000
Add: Interest 50, 000
Maturity Value 550, 000
Less: Discount 33, 000
Net Proceeds 517, 000
Problem VI
Tender Company accepted from a customer a P4,000,000 90-day, 12% note dated August 31,2019. On
September 30,2019, the entity discounted without recourse the note at 15%. However, the proceeds were
not received until October 1, 2019.
Question 1: What amount was received from the note receivable discounting?
A. 4,017,000
B. 4,210,000
C. 4,103,000
D. 3,965, 500
Answer: A
Principal 4,000,000
Interest (4,000,000 x 12% x 90/360) 120,000
Maturity Value 4,120,000
Less: Discount (4,120,000 x 15% x 60/360) 103,000
Net Proceeds 4,017,000
Question 2: What amount should be reported as loss on note receivable discounting?

A. 17,000
B. 23,000
C. 40,000
D. 0
Answer: B
Principal 4,000,000
Accrued interest receivable (4,000,000 x 12% x 30/360) 40,000
Carrying amount of NR 4,040,000
Net proceeds 4,017,000
Loss on discounting 23,000
Reference: Intermediate Accounting 2019 Volume 1 by Valix, Peralta, Valix pg. 242
Problem VII
Foremost Company received from a customer a one-year, P500,000 note bearing annual interest of 8%.
After holding the note for six months, the entity discounted the note at the bank at an effective interest
rate of 10%.
Question 1: What amount of cash was received from the bank?

A. 540,000
B. 523,810
C. 513,000
D. 495,238
Answer: C
Principal 500,000
Interest (500,000 x 8%) 40,000
Maturity Value 540,000
Less: Discount (540,000 x 10% x 6/12) 27,000
Net Proceeds 513,000
Question 2: What is the loss on note receivable discounting?
A. 20,000
B. 13,000
C. 7,000
D. 0
Answer: C
Principal 500,000
Accrued interest receivable (500,000 x 8% x 6/12) 20,000
Carrying amount of NR 520,000
Net proceeds 513,000
Problem VIII
On July 1, 2019, Jolly Company sold goods in exchange for P2,000,000, 8-month, noninterest-bearing
note receivable. At the time of the sale, the note’s market rate of interest was 12%. The note was
discounted at 10% on September 1, 2019.
Question 1: What amount was received from the note receivable discounting?
A. 1,940,000
B. 1,938,000
C. 1,900,000
D. 1,880,000
Answer: C
Principal 2,000,000
Less: Discount (2,000,000 x 10% x 6/12) 100,000

A. 100,000
B. 125,000
C. 25,000
D. 0
Answer: A
(2,000,000-1,900,000) 100,000
Problem IX
On June 30, 2019, Bosom Company discounted at the bank a customer’s P6,000,000, 6-month, 10%
note receivable dated April 30, 2019. The bank discounted the note at 12%.
Question 1: What amount should be reported as net proceeds from the discounted note receivable?
A. 5,640,000
B. 5,760,000
C. 6,048,000
D. 6,174,400
Answer: C
Principal 6,000,000
Interest (6,000,000 x 10% x 6/12) 300,000
Maturity value 6,300,000
Less: discount (6,300,000 x 12% x 4/12) 252,000
Problem X
On June 30, 2019, Bosom Company discounted at the bank a customer’s P6,000,000, 6-month, 10%
note receivable dated April 30, 2019. The bank discounted the note at 12%.

A. 252,000
B. 152,000
C. 52,000
D. 48,000
Answer: C
Principal 6,000,000
Accrued interest receivable (500,000 x 8% x 6/12) 100,000
Carrying amount of NR 6,100,000

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8.

Interest is usually associated with

9. The receivable that is usually evidenced by a formal instrument of credit is a(n)

11. The sale of receivables by a business

13. As a form of receivable financing, discounting specifically pertains to notes receivable.

14. Receivables might be sold to

15. A promissory note

16. Which of the following is not true regarding a promissory note?

17. The two key parties to a promissory note are the

Question 1: What amount of cash was loss in discounting?

Principal 5, 000, 000

Net proceeds 5, 021, 250

Question 2: What amount should be reported as loss on note receivable discounting?

Question 1: What amount of cash was received from the bank?

Question 2: What is the loss on note receivable discounting?

Question 1: What is the loss on note receivable discounting?

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