ADAMSON UNIVERSITY

INTERMEDIATE ACCOUNTING 1
ACCOUNTS / NOTES RECEIVABLE – QUIZ
1. Credit balances in accounts receivable shall be classified as
a. current liabilities.
b. part of accounts payable.
c. long term liabilities.
d. deduction from accounts receivable.

2. Which of the following is not acceptable in estimating uncollectible accounts

receivable?
a. The estimate of uncollectible accounts is based on a percentage of sales for the period.
b. The estimate of uncollectible accounts is based on a percentage of the accounts
receivable at the end of a period.
c. The estimate of uncollectible accounts is based on whether the accounts are not due or
past due
d. No estimate of uncollectible accounts is made but accounts are written off when it is
determined that the accounts cannot be collected

3. Which of the following statements is true?

a. When individual customers’ accounts have credit balances of material amounts, these
amounts must be deducted from the debIt balance in other customers’ accounts in the
statement of financial position.
b. When a specified customer’s account which had already been written off is later
collected, sales revenue is increased by the amount of the recovery.
c. A non-interest bearing promissory note is measured on the statement of financial
position at face value less the amount of unamortized discount.
d. Trade receivables and non-trade receivables are shown separately.
4. Accounting for the interest in a non-interest bearing notes receivable is an example of
what accounting principle?
a. Verifiability
b. Relevance
c. Substance over Form
d. Understandability

5. Storm, Inc. prepared an aging of its accounts receivable at December 31, 2010,
and determined that the amortized carrying value of the receivables was ₱250,000.
Additional information is available as follows:

Allowance for bad debts at 1/1/2010 (credit balance) – P28,000

Accounts written-off as uncollectible during 2010 – P23,000
Accounts Receivable at 12/31/2010 (debit balance) – P270,000
Uncollectible accounts recovered during 2010 – P5,000
For the year ended December 31, 2010, Storm’s doubtful accounts expense would
be:
a. P20,000
b. P15,000
c. P10,000
d. P5,000

If the amortized carrying value (or Net Realizable Value) of the receivables is
P250,000, then, the end balance of the account “Allowance for Doubtful
Accounts” MUST be P20,000 (Credit Balance)

Accounts Receivable at 12/31/2010 270,000

Less: SHOULD BE BALANCE of Allowance for 20,000
Doubtful Accounts at 12/31/2010
--------------
Net Realizable Value of Accounts Receivable 250,000

The analysis shown above tells you that the end balance of “Allowance for
Doubtful Accounts” SHOULD BE P20,000 (Credit Balance)

You may proceed by journalizing the transactions that affected “Allowance

for Doubtful Accounts” during the year

Allowance for Doubtful Accounts 23,000

Accounts Receivable 23,000
To record accounts written-off as uncollectible during 2010

Accounts Receivable 5,000

Allowance for Doubtful Accounts 5,000
To reinstate uncollectible accounts recovered during 2010
Proceed by using the general ledger or T-account as aid in analyzing the
“Allowance for Doubtful Accounts” by posting the journal entries above,
taking into consideration that the end balance of “Allowance for Doubtful
Accounts” SHOULD BE P20,000 (Credit Balance)

Allowance for Doubtful Accounts

Written Off 23,000 01/01/2010 28,000
Recovered 5,000
----------- -----------
23,000 33,000

The general ledger or T-account shown above tells you that the CURRENT
balance of “Allowance for Doubtful Accounts” before any adjustment is
ONLY P10,000 (Credit Balance). Recall that the end balance of the said
account SHOULD BE P20,000 (Credit Balance). Hence, an ADDITIONAL
CREDIT of P10,000 IS NEEDED. Therefore, the adjusting journal entry
needed for “Allowance for Doubtful Accounts” is

Doubtful Accounts Expense 10,000

Allowance for Doubtful Accounts 10,000
To record adjustment for the year 2010

Post this adjusting entry to the existing general ledger or T-account

Allowance for Doubtful Accounts

Written Off 23,000 01/01/2010 28,000
Recovered 5,000
Adjustment 10,000
----------- -----------
23,000 43,000
The general ledger or T-account of “Allowance for Doubtful Accounts” now
shows P20,000 (Credit Balance) due to the adjustment amounting to P10,000.
Hence, the answer is letter C.

6. Parker Company had the following information relating to its Accounts

Receivable:

Accounts Receivable at 12/31/11 – P1,300,000

Credit sales for 2012 – P5,400,000
Collections from customers during 2012 (including recovery of P25,000) –
P4,750,000
Accounts written off, 09/30/12 – P125,000
Estimated uncollectible receivables per aging at 12/31/12 – P100,000

At December 31, 2012, Parker’s Accounts Receivable before allowance for

uncollectible accounts should be:
a. P1,825,000
b. P1,850,000
c. P1,950,000
d. P1,990,000

Prepare a general ledger or T-account for the “Accounts Receivable”, then

determine how each data affects the “Accounts Receivable” and how they
should be posted in the general ledger or T-account. Journalize, if necessary.

Accounts Receivable at 12/31/11 – P1,300,000 (This is the beginning balance of

“Accounts Receivable” for the year 2012)
 Accounts Receivable
01/01/2011 1,300,000
Credit sales for 2012 – P5,400,000
Accounts Receivable 5,400,000
Sales 5,400,000

Accounts Receivable
01/01/2011 1,300,000
Sales on account 5,400,000

Collections from customers during 2012 (including recovery of P25,000) –

P4,750,000
Cash 4,750,000
Accounts Receivable 4,750,000

Accounts Receivable
01/01/2011 1,300,000 Collections 4,750,000
Sales on account 5,400,000

Accounts written off, 09/30/12 – P125,000

Allowance for Doubtful Accounts 125,000
Accounts Receivable 125,000

Accounts Receivable
01/01/2011 1,300,000 Collections 4,750,000
Sales on account 5,400,000 Written Off 125,000
Estimated uncollectible receivables per aging at 12/31/12 – P100,000 (NOT
RELEVANT TO THE REQUIREMENT OF THE PROBLEM)

From here, proceed to computing the end balance of “Accounts Receivable”

Accounts Receivable
01/01/2011 1,300,000 Collections 4,750,000
Sales on account 5,400,000 Written Off 125,000
--------------- ---------------
6,700,000 4,875,000
Total Debits, P6,700,000 MINUS Total Credits, P4,875,000 is equal to the
END BALANCE (the problem’s requirement) of “Accounts Receivable”,
P1,825,000. That’s why the answer is A.

USE THE FOLLOWING INFORMATION FOR NOS. 7 TO 10

Colossus Company is a dealer in equipment. On December 31, 2020, Colossus

sold an equipment in exchange for a non-interest bearing note requiring five (5)
annual payments of P500,000. The first payment was made on December 31,
2021. The market interest rate for similar notes was 8%. The present value (PV)
of 1 at 8% for 5 periods is 0.68, while the present value (PV) of an ordinary
annuity of 1 at 8% for 5 periods is 3.99

7. On December 31, 2020, what is the carrying amount of the notes receivable?
a. P2,500,000
b. P1,995,000
c. P1,700,000
d. P1,495,000

8. What amount of interest income should be reported for 2021?

a. P505,000
b. P101,000
c. P159,600
d. P119,600

9. On December 31, 2021, what is the carrying amount of the notes receivable?
a. P1,654,600
b. P2,154,600
c. P2,000,000
d. P1,495,000
10. What amount of interest income should be reported for 2022?
a. P132,368
b. P172,368
c. P160,000
d. P200,000

The key is to compute for the correct present value (PV) of the note. Since the
non-interest bearing note requires 5 annual payments, it means that the note
is on installment. Hence, choose present value (PV) of an ordinary annuity of
1 at 8% for 5 periods, 3.99

PV of the note P500,000 X 3.99 P1,995,000

To compute for the “Unearned Interest Income” on the note, compare the PV
of the note with the Face Value of the note

Face Value of the note P500,000 X 5 years P2,500,000

Less: PV of the note P500,000 X 3.99 1,995,000
-----------------
Unearned Interest Income 505,000

Recall that the carrying amount of an installment non-interest bearing note is

measured by:

 Initial Measurement - SUBTRACTING the “Unearned Interest

Income” FROM THE Face Value of the note, OR simply the Present
Value of the note.

 Subsequent Measurement – SUBTRACTING the balance of “Unearned

Interest Income” FROM THE balance of the note

Hence, FOR ITEM NO. 7, the carrying amount of the note on December 31,
2020 is P1,995,000 (Letter B)

Proceed to preparing an amortization table for the “Unearned Interest

Income”

Date Annual Interest Principal Present Value

Collection Income
(Annual (Present
(Present Collection – Value –
Value X Rate) Interest Principal)
Income)
12/31/2020 0 0 0 1,995,000
12/31/2021 500,000 (08)159,600 340,400 (09)1,654,600

12/31/2022 500,000 (10)132,368 367,632 1,286,968

12/31/2023 500,000 102,957 397,043 889,925

12/31/2024 500,000 71,194 428,806 461,119

12/31/2025 500,000 38,881 461,119 0

------------

Total 505,000

Note that P461,119 X 8% is only P36,890. The difference between P38,881

and P36,890 is deficiency due to rounding.

The answers for ITEMS 8, 9, and 10 are indicated in the amortization table