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Problem 6-17 Multiple choice (AICPA Adapted)
1. On October 1 of the current
one-year note receivable bearing interest at the market
rate. The face amount of the note receivable and the entire
amount of the interest are due on September 30 of next
year. The interest receivable on December 31 of the
current year would consist of an amount representing
year, an entity received a
a. Three months of accrued interest income
b. Nine months of accrued interest income
c. Twelve months of accrued interest income
d. The excess on October 1 of the present value of the
note receivable over the face amount
2. On July 1 of the current year, an entity obtained a
two-year 8% note receivable for services rendered. At
that time, the market rate of interest was 10%. The face
amount of the note and the entire amount of interest are
due on the date of maturity. Interest receivable on
December 31 of the current year is
a. 5% of the face amount of the note
b. 4% of the face amount of the note
c. 5% of the present value of the note
d, 4% of the present value of the note
3. An entity uses the installment method to recognize
revenue from installment sales. Customers pay the
installment notes in 24 equal monthly amounts which
include 12% interest. What is the carrying amount of the
installment notes receivable six months after the sale?
a. 75% of the original sales price.
b. Less than 75% of the original sales price
c. The present value of the remaining monthly payments
discounted at 12%. .
d. Less than the present value of the remaining monthly
payments discounted at 12%.
187‘4 What is imputed interest?
Interest based om the stated interest rate
interest based on the implicit interest rate
& Interest based on the average interest rate
Interest based on the bank prime interest rate
5. Accounting forthe interest in a noninterest bear
receivable is an example of what aspect of ao ia
seo ple of what aspect of accounting
Relevance
Verifiability
Substance over form
Form over substance
6. On duly 1 of the current year, an entity received a one-year
note receivable bearing interest at the market rate, The
fave amount of the note receivable and the entire amount of
the interest are due in one year. The interest receivable
‘account would show a balance on
a. July 1 but not December 81
b, December 31 but not July 1
e. July 1 and December 31
4. Neither July 1 nor December 31
7. On duly Lof the current year, an entity received a one-year
note receivable bearing interest at the market rate. The ft
‘amount of the note receivable and the entire amount ofthe
interest are due in one year. When the note receivable *#
recorded on July 1, which of the following was debited?
‘a. Interest receivable
b. Unearned discount on note receivable
Intereet receivable and unearned discount on n0l®
receivable
d. Neither interest re
note receivable
sceivable nor unearned disoount
188
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on July 1 ofthe current year, an entity received & one-year
Gita receivable bearing interest at the market rate. The
free amount of the note receivable and the entire amount of
the interest are due on June 30 of next year. On December
51 of the current year, the entity should report in the
‘statement of financial position
a. A deferred credit for interest applicable to next year
b. No interest receivable
. Interest receivable for the entire amount of the interest
due on June 30 of next year
4. Interest receivable for the interest accruing in the
current year
10. An entity received a seven-year ero interest-bearing note
fon February 1, 2020 in exchange for property sold. There
‘was no established exchange price for the property and the
note has no ready market. The prevailing rate of interest
for a note of this type was 7% on February 1, 2020, 6% on
December 31, 2020, 8% on February 1, 2021, and 9% on
December 31, 2021, What interest rate should be used to
calculate the interest revenue from the transsetion for the
Years ended December 31, 2020 and 2021, respectively?
0% and 0%
b. 7% and 7%
& M% and 9%
6% and 95%
1891.
problem 8-19 Multiple choice (IAA)
Why would an entity factor accounts receivable?
To improve the quality of credit granting process
To limit its legal liability
To accelerate access to amount collected
To comply with customer agreements
Bose
Which of the following is a method to generate cash from
accounts receivable?
a. Assignment
b. Factoring
c. Assignment and factoring
d. Assignment, factoring and discounting
The practice of realizing cash from accounts receivable
prior to maturity date is widespread. Which term is not
associated with this practice?
Hypothecation
Factoring
Defalcation
Pledging
Boop
When the accounts receivable are sold outright, the
accounts receivable have been
a. Pledged
b. Assigned
c. Factored
d. Collateralized
Which of the following is used to account for probable
sales discounts, sales returns and sales allowances in a
factoring arrangement?
Factor holdback
Recourse liability et
Both factor holdback and recourse liability
Neither factor holdback nor recourse liability
249
peopProblwm 8-20 Multiple choice (AICPA Adaptea)
1. When an entity factored accounts receivable without
recourse with a bank, the transaction is best described as
a. Bank loan collateralized by the accounts receivable,
b. Bank loan to be repaid by the proceeds from the accounts
receivable.
c. Sale of the accounts receivable to the bank, with risk of
uncollectible accounts retained by the entity.
d. Sale of the accounts receivable to the bank, with the
risk of uncollectible accounts transferred to the bank,
2. Which statement is true when accounts receivable are
factored without recourse?
a. The transaction may be accounted for either as secured
borrowing or sale.
b. The accounts receivable are used as collateral.
ce. The factor assumes the risk of collectibility and absorbs
any credit losses in collecting the accounts receivable.
d. The financing cost should be recognized ratably over
the collection period.
3. All but one of the following are required before a transfer
of accounts receivable can be recorded as a sale.
a. The transferred accounts receivable are beyond the
reach of the transferor and the creditors.
b. The transferor has not kept effective control through 4
repurchase agreement.
c. The transferor maintains continuing involvement.
d. The transferee can pledge the accounts receivable.
4, If financial assets are exchanged for cash but the transiet
"does not meet the criteria for a sale, the transaction shoul
be accounted for as
Secured borrowing
a
ff collateral
b. Pledee Joured borrowing and pledge of collateral :
S Neither secured borrowing nor pledge of collaters
250
|Problem 9-13 Multiple choice (IAA)
1. Ifa note receivable is discounted with recourse
‘A contingent liability does not exist.
Note receivable discounted is credited.
Liability for note receivable discounted is credited,
|. Note receivable must be credited.
Bore
2, The note receivable discounted account is reported as
a. Contra asset account for the proceeds from
. discounting
b. Contra asset account for the face amount of the note
c. Liability account for the proceeds from the discounting
d. Liability account for the face amount of the note
3, Ifa note receivable is discounted without recourse
a. The contingent liability may be disclosed
b. Liability for note receivable discounted is credited
c. Note receivable is credited
d. The transaction is a secured borrowing
4, Note receivable discounted with recourse should be
a. Excluded from total receivables without disclosure
b. Excluded from total receivables with disclosure
c. Included in total receivables without disclosure
d. Included in total receivables with disclosure
5. After being held for 40 days, a 120-day 12% interest
bearing note receivable was discounted at a bank at 15%
The net proceeds from discounting are equal to
a. Maturity value less the discount at 12%
b. Maturity value less the discount at 15%
c. Face amount less the discount:at 12%
d. Face amount less the discount at’ 15%
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