1.

When accounts receivable are factored on a “with recourse” basis, the

factoring is usually treated as:
a. A secured borrowing
b. An outright sale
c. A transfer of financial asset without recognition of liability created
in the transfer
d. Derecognition of financial asset when the transferor neither transfers
nor retains substantially all the risks and rewards of ownership of the
financial asset and has not retained control. The transferor recognizes
separately as assets or liabilities any rights and obligations created
in the transfer, such as the proceeds on the factoring and the recourse
obligation.

2. If company uses a percentage of receivables in computing the amount of

uncollectible accounts expense:
a. No valuation allowance will be required
b. The relationship between revenue and expenses is being stressed more
than the valuation of receivables at the balance sheet date
c. The existing balance in the Allowance for Doubtful Accounts will be
increased sufficiently to equal the probable loss indicated by the
percentage of receivables computation
d. Any past due accounts will be listed as a separate item in the balance
sheet

3. Which of the following is not an acceptable balance sheet presentation of

receivables?
a. Allowance for bad debts is not offset against the related receivables
but rather shown in a parenthetical notation as deduction to
receivables
b. Trade notes receivable are combined with trade accounts receivable
c. Cash advances to officers which are due after one year but within the
entity’s 18-month operating cycle, are reported as current assets
d. Unearned finance charges included in the face amount of receivables are
presented as deduction from the related receivables

4. On March 1, 2018, ABC Co. assigned its P1,000,000 accounts receivable to

Piggy Bank in exchange for a 2-month, 12% loan equal to 75% of the
assigned receivables. ABC Co. received the loan proceeds after a 2%
deduction for service fee based on the assigned notes. During March,
P500,000 were collected from the receivables. Sales returns and discounts
amounted to P150,000. How much net cash is received from the assignment
transaction on March 1, 2018?
a. P735,000
b. P1,230,000
c. P730,000
d. P1,235,000

5. Mare Co.’s December 31, 2018 statement of financial position reported the
following current assets:

Cash P 70,000
Accounts receivable 120,000
Inventories 60,000
Total P 250,000

An analysis of the accounts disclosed that accounts receivable consisted of

the following:

Trade accounts P
96,000
Allowance for uncollectible accounts (2,000)
 Selling price of Mare’s unsold goods out on
consignment, at 130% of cost, not
included 26,000
in Mare’s ending inventory
Total P
120,000
At December 31, 2018, the total of Mare’s current assets is:

a. P224,000
b. P230,000
c. P244,000
d. P270,000

6. When the allowance method of recognizing uncollectible accounts is used,

the entry to record the write-off of a specific account:
a. Decreases both accounts receivable and the allowance for uncollectible
accounts
b. Decreases accounts receivable and increases the allowance for
uncollectible accounts
c. Increases the allowance for uncollectible accounts and decreases net
income
d. Decreases both accounts receivable and net income

7. The basic objective of accounting is:

a. To provide the information that managers of an economic entity need to
control its operations.
b. To provide information that the creditors of an economic entity can use
in deciding whether to make additional loans to the entity.
c. To measure the periodic income of the economic entity.
d. To provide quantitative financial information about an entity that is
useful in making rational economic decisions.

8. Which of the following statement/s is incorrect regarding how the

impairment assessment be performed?
I. Receivables that are individually significant should be considered for
impairment separately, if impaired, the company recognizes it.
II. Receivables that are not individually significant are assessed
individually. If impaired, the company recognizes it.
III. Any receivable individually assessed that is not considered impaired
should not be included with a group of assets similar credit-risk
characteristics and collectively assessed for impairment.
IV. Any receivables not individually assessed should be collectively
assessed for impairment.
a. I and II
b. II and III
c. III and IV
d. I and IV

9. When an accounts receivable aging schedule is prepared, a series of

computations is made to determine the estimated uncollectible accounts.
The resulting amount from this aging schedule:
a. When added to the total accounts written off during the year is the
desired credit balance of the allowance for doubtful accounts at year-
end
b. Is the amount of doubtful accounts expense for the year
c. Is the amount that should be added to the beginning allowance for
doubtful accounts to get the doubtful accounts expense for the year
d. Is the amount of desired credit balance of the allowance for doubtful
accounts to be reported at year-end
10. In December 31, 2018 statement of financial position, Fleet Co. reported
accounts receivable of P100,000 before allowance for uncollectible
accounts of P10,000. Credit sales during 2019 were P611,000, and
collections from customers, excluding recoveries, totaled P591,000. During
2019, accounts receivable of P45,000 were written off and P17,000 were
recovered. Fleet estimated that P15,000 of the accounts receivable at
December 31, 2019, were uncollectible. In its December 31, 2019 statement
of financial position, what amount should Fleet report as accounts
receivable before allowance for uncollectible accounts?
a. P58,000
b. P67,000
c. P75,000
d. P82,000

For items 11 and 12:

PALA-UTANG Company presented you the following information for its year ended
December 31, 2018:

The fact that some credit accounts will prove uncollectible is normal. Annual
bad debt write-offs have been 1.5% of gross credit over the past five years.
During the last calendar year, this percentage increased to 4%. The current
Accounts Receivable balance is P1,600,000. The Company decided to change its
method of estimating the bad debts through the use of an aging analysis. The
condition of this balance in terms of age and probability of collection is as
follows:

Proportion of Total Age Categories Probability of

Collection
68% Not yet due 99%
15% Less than 30 days past 96.5%
due
8% 30 to 60 days past due 95%
5% 61 to 120 days past due 91%
2.5% 121 to 180 days past due 70%
1.5% Over 180 days past due 20%

The Allowance for Doubtful Accounts had a credit balance of P43,300 on

December 31, 2017. PALA-UTANG has provided for a monthly bad debts expense
accrual during the current year based on the assumption that 4% of gross
credit sales will be uncollectible. Total gross credit sales for 2018
amounted to P4,000,000. Write-offs of bad accounts during the year totaled
P145,000.

11. How much is the total estimated amount that is uncollectible?

a. P58,300
b. P64,080
c. P160,000
d. P203,300
12. How much is the adjustment to Allowance for Doubtful Accounts on December
31, 2018?
a. P5,780
b. P160,000
c. P126,600
d. P58,300
13. If receivables are hypothecated (pledged) against borrowings, the amount
of receivables involved should be
a. Excluded from the total receivables, with disclosures
b. Excluded from the total receivables, with no disclosures
c. Disclosed in the statements or notes
d. Disclosed from the total receivables and a gain or loss is recognized
between the face value and amount of borrowings
14. Which of the following is/are true when accounts receivable are factored
without recourse?
I. The transaction may be accounted for either as secured borrowing or as
a sale, depending upon the substance of the transaction.
II. The receivables are used as collateral for a promissory note issued to
the factor by the owner of the receivables.
III. The factor assumes risk of collectability and absorbs any credit losses
in collecting the receivables.
IV. The financing cost (interest expense) should be recognized ratably over
the collection period of the receivables.

a. I and II
b. I and III
c. III only
d. III and IV
15. PASAR LAGI CO. provides financing to other companies by purchasing their
accounts receivable on a nonrecourse basis. PASAR LAGI charges its clients
on a commission of 15% of all receivables factored. In addition, PASAR
LAGI withholds 10% of receivables factored as protection against sales
returns or other adjustments. PASAR LAGI credits the 10% withheld to
Client Retainer and makes payments to clients at the end of each month so
that the balance in the retainer is equal to 10% of unpaid receivables at
the end of the month. PASAR LAGI recognizes 15% commission as revenue at
the time the receivables are factored. Also, experience had led PASAR LAGI
to establish an Allowance for Bad Debts of 4% of all receivables
purchased.

On January 2, 2013, PASAR LAGI Co. purchased from SALIGMAN Co. totaling
P1,500,000. SALIGMAN had previously established Allowance for Bad Debts for
these receivables of P35,000. BY January 31, PASAR LAGI had collected
P1,200,000 on these receivables.

What amount of loss on factoring should SALIGMAN Co. recognize on the sale of
its receivable?

a. P0
b. P190,000
c. P150,000
d. P225,000
16. On September 1 of the current year, David Company borrowed P900,000 for
one year from Brayden Bank with a stated interest rate of 10%. As a
security for the loan, David Company hypothecated its accounts receivable
amounting to P1,200,000. Brayden Bank deducted the one year interest in
advance. How much cash is received on September 1 as a result of pledging
accounts receivable?
a. P900,000
b. P810,000
c. P870,000
d. P855,000
17. Blessing Company sold accounts receivable without recourse for P265,000.
Blessing received P250,000 cash immediately from the factor. The remaining
P15,000 will be received once the factor verify that none of the accounts
receivable is in dispute. The accounts receivable had a face amount of
P300,000. Blessing had previously established an allowance for bad debts
of P12,500 in connection with these accounts. What is the loss on
factoring that will be recognized by Blessing Company?
a. P35,000
b. P22,500
c. P37,500
d. P15,000
18. An adjusted trial balance
 a. Is prepared after the financial statements are completed.
b. Proves the equality of the total debit balances and total credit
balances of ledger accounts after all adjustments have been made.
c. Is a required financial statement under international financial
reporting standards
d. Can be used to prepare financial statements.

For items 19-22:

An entity began operations on January 1, 2013. From 2013 to 2015, the entity
provided for doubtful accounts based on 5% of annual credit sales. On January
1, 2016, the entity changed the method of determining the allowance for
doubtful accounts using an aging schedule.

In addition, the entity writes off all accounts receivable that are over 1
year old. The following information relates to the years ended December 31,
2013, 2014, 2015 and 2016.

2016 2015 2014 2013

Credit sales 15,000,000 9,500,000 8,000,000 6,000,000
Collections 11,700,000 8,200,000 6,700,000 4,500,000
Accounts written off during 200,000 120,000 80,000 None
the year
Recovery of accounts written 90,000 40,000 25,000 None
off

Probability of
Days Account Outstanding Amount Collection
Less than 16 days 3,000,000 98%
Between 16 and 50 days 1,500,000 80%
Between 51 and 100 days 1,200,000 75%
Between 101 and 200 days 800,000 50%
Between 201 and 365 days 400,000 20%
Over 365 days – to be written off 100,000 0%

19. What was the allowance for doubtful accounts on January 1, 2016?
a. 1,175,000
b. 1,240,000
c. 1,040,000
d. 975,000
20. What amount would be reported as allowance for doubtful accounts on
December 31, 2016?
a. 1,380,000
b. 2,420,000
c. 1,480,000
d. 1,060,000
21. What amount should be reported as doubtful accounts expenses for 2016?
a. 550,000
b. 450,000
c. 750,000
d. 200,000
22. What is the net realizable value of accounts receivable on December 31,
2016?
a. 6,900,000
b. 5,520,000
c. 7,000,000
d. 5,620,000

For items 23 and 24:

 On December 31, 2018 Cookies N’ Cream Company factors P450,000 of its
receivable to Vanilla Company on a with recourse. The agreement includes a
factoring fee of 8% and a 10% holdback both based on the factored accounts.

Vanilla Company shall maintain the holdback account at 10% of the uncollected
receivables and will make payments to Cookies N’ Cream at the end of each
month for any excess. Cookies N’ Cream Company had previously established an
Allowance for Doubtful Accounts for these receivables of P12,000. The
recourse obligation has a fair value of P8,000.

23. The amount of cash received by Cookies N’ Cream from factoring

a. P369,000
b. P369,960
c. P372,600
d. P377,100
24. The loss arising from the factoring of receivables
a. P24,000
b. P32,000
c. P35,040
d. P44,000

On March 31, 2017, Red Velvet Co. had an unadjusted credit balance of P1,000
in its allowance for uncollectible accounts. An analysis of Red Velvet’s
trade accounts receivable at the date revealed the following:

Age Amount Estimated uncollectible

0-30 days P60,000 5%
31-60 days 4,000 10%
Over 60 days 2,000 P1,400

25. The amount Red Velvet should report as allowance for uncollectible
accounts in its March 31, 2017 balance sheet is
a. P4,800
b. P3,800
c. P4,000
d. P3,000

For items 26 and 27:

The following transactions affecting the accounts receivable of Sweden Co.

took place during the year 2018:

Sales (cash and credit) P600,000

Cash received from cash customers 200,000
Cash received from credit customers (P327,650 was
received from customers who took advantage of
the discount feature of the company’s credit
terms 3/10, n/30)
400,000
Accounts receivable written off as worthless 5,000
Credit memoranda issued to credit customers for sales 25,000
returns and allowances
Credit refunds given to cash customers for sales
returns and allowances 15,000
Recoveries on accounts receivable written off as
uncollectible in prior periods (not included in
cash collection above) 8,500

An aging of receivables indicate that P7,500 of the accounts receivable

balance are deemed uncollectible.

The following balances were taken from the December 31, 2017 balance sheet:
Accounts Receivable – P90,000; Allowance for bad debts – P40,000.
26. What is the accounts receivable ledger balance at December 31, 2018?
a. P60,000
b. P61,150
c. P52,650
d. P90,000
27. How much is the bad debts expense reported in the income statement for the
year ended December 31, 2018?
a. P4,900
b. P2,600
c. P7,500
d. P11,100

For items 28 and 29:

On January 1, 2018, Wackisan Co. sells inventory with a list price of

P100,000 on account under credit terms of 15%, 20%, 3/10, n/30.

28. Under the gross method, how much should be debited to Accounts Receivable
on January 1, 2018?
a. P100,000
b. P85,000
c. P68,000
d. P65,960
29. Under the net method, how much should be debited to Accounts Receivable on
January 1, 2018?
a. P100,000
b. P85,000
c. P68,000
d. P65,960

For items 30-32:

On December 21, 2018, Belle Company assigned specific accounts receivable

totaling P200,000 as collateral on a P150,000, 12% note from a certain bank.
Belle Company will continue to collect the assigned accounts receivable. In
addition to the interest on the note, the bank also charges a 5% finance fee
deducted in advance on the P150,000 value of the note. The December
collections of assigned receivable amounted to P100,000 less cash discounts
of P5,000. On December 31, 2018, Belle Company remitted the collections to
the bank in payment for the interest accrued on December 31, 2018 and the
note payable.

30. What amount of cash was received from the assignment of accounts
receivable on December 1, 2018?
a. P200,000
b. P150,000
c. P190,000
d. P142,500
31. What is the carrying amount of note payable on December 31, 2018?
a. P50,000
b. P55,000
c. P56,500
d. P73,000
32. What amount shall be disclosed as the equity of Belle Company in assigned
accounts on December 31, 2018?
a. P50,000
b. P45,000
c. P43,500
d. P27,000
33. The following comprise the complete set of financial statements, except:
a. Statement of Financial Position
b. Statement of Changes in Equity
 c. Statement of Profit or Loss and Other Comprehensive Income
d. Statement of Cost of Goods Manufactured

On December 31, 2018, Jenah Co’s “Accounts Receivable” includes the

following:

Accounts receivables, net of P40,000 credit balance

in customer’s accounts, including P3,000 accounts
receivable to customer which is definitely
uncollectible P240,000
MasterCard or VISA credit card sale of merchandise
to customer 150,000
Overpayment to supplier for inventory purchased on
Account 10,000
Accounts payable, net of P30,000 debit balance in
supplier’s accounts 130,000
Special deposit on contracts 110,000
Dividend receivable 15,000
Other trade accounts receivable – unassigned 70,000
Advances to or receivables from stockholders
(P80,000 is collectible currently) 300,000
Trade accounts receivable - assigned 100,000

34. How much is the Total Trade Receivables?

a. P170,000
b. P427,000
c. P597,000
d. P497,000

35. On December 31, 2018, the Receivables account of OMG Company shows a debit
balance of P5,950,000. Subsidiary details show the following:

Accounts receivable, P725,000; Notes receivable, P100,000; Installments

receivable, normally sure 1 year to two years, P300,000; Customers’account
reporting credit balances arising from sales returns, P30,000; Advance
payments for purchase of merchandise, P150,000; Cash advances to subsidiary,
P400,000; Claim from insurance company, P15,000; Subscription receivable due
in 60 days, P300,000; Accrued interest receivable, P10,000; Deposit on
contract bids, P3,000,000 and Advances to shareholders (collectible in 2020),
P1,000,000. How much is the amount to be presented as “loans and receivables”
under current assets section of the statement of financial position?

a. P725,000
b. P1,125,000
c. P1,590,000
d. P1,600,000
36. Which of the following function is associated with the revenue/receipt
cycle?
a. Resources are held, used or transformed
b. Obligations are paid to vendors and employees
c. Capital funds are received from investors and creditors
d. Resources and distributed to outsiders in exchange for promises of
future payments
37. What transaction commences the revenue cycle?
a. Bad Debt Expense
b. Sales returns and allowances
c. Allowance for uncollectible accounts
d. Cash credit from the cash disbursement journal
38. What transaction commences the revenue cycle?
a. The customer places the order
b. The company received the order
c. The company records the sale transaction
 d. The company records the accounts receivable
39. Which of the following concepts relates to using the allowance method in
accounting for accounts receivable/
a. Bad debt expense is an estimate that is based on historical and
prospective information.
b. Bad debt expense is based on the actual amounts determined t be
uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of
the receivables aging.
d. Bad debts expense is management’s determination of which accounts will
be sent to the attorney for collection.
40. Which of the following is true when accounts receivable are factored
without recourse?
a. The transaction may be accounted for either as a secured borrowing or
as a sale, depending upon the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued t
the factor by the owner of the receivables.
c. The factor assumes the risk of collectability and absorbs any credit
losses in collecting the receivables.
d. The financing cost (interest expense) should be recognized ratably over
the collection period of the receivables.