IR Finals

1. The category “trade receivables” includes

a. Advances to officers and employees
b. Income tax refunds receivable
c. Claims against insurance companies for casualties sustained
d. None of these

2. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in cash
a. Within one year or within the operating cycle whichever is shorter
b. Within one year or within the operating cycle whichever is longer
c. Within one year, the length of the operating cycle, notwithstanding
d. Within the normal operating cycle

3. Which if the following is the proper balance sheet presentation of receivables?

a. Trade receivables and non-trade receivables which are currently collectible should be presented as one line item called “trade and
other receivables”
b. Trade accounts receivables and trade notes receivable should be presented separately
c. Non-trade receivables should be presented as current assets
d. Trade receivables and non-trade receivables should be shown separately

4. Accounts receivable should be stated at

a. Net realizable Value
b. Face value
c. Maturity Value
d. Discounted Value

5. When a specific customer’s accounts receivable was written off as uncollectible but was subsequently recovered, what will be the effect on
Accounts Receivable and Allowance for Doubtful accounts, respectively?
a. No effect, increase b
b. increase, no effect
c. Increase, increase
d. some other answer

6. When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific customer account would
a. Decrease accounts receivable
b. Decrease net income
c. Decrease accounts receivable and decrease net income
d. Increase accounts receivable and increase net income

7. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
a. Determining worthless accounts under direct write-off is difficult to do
b. Allowance method is used for tax purposes
c. Estimates are used
d. Improved matching of bad debt expense with revenue

8. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on
a. Aging the trade receivable accounts
b. Credit sales
c. Specific accounts receivable determined to be uncollectible
d. Direct write-off method

9. How should unearned interest included in the face amount of notes receivable be presented on the balance sheet?
a. As a deduction from the related receivables
b. As a deferred credit
c. In the footnotes
d. As a current liability
10.The interest of a non-interest bearing note is equal to
a. Zero
b. The excess of the market value over the present value of the note
c. The excess of the face value over the present value
d. The excess of the present value over the face value

11.Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future,
failure to follow this practice usually does not make the balance sheet misleading because
a. Most short-term receivables are not interest-bearing
b. The allowance for uncollectible accounts includes a discount element
c. Most receivables can be sold to a bank of factor
d. The amount of the discount is not material

12.On October 1, 2011, a company received a 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, 2012. The interest receivable account at December 31, 2011 would consist of the
amount representing
a. Nine months of accrued interest income
b. The excess on October 2, 2011 of the present value of the note receivable over its face value
c. Three months of accrued interest
d. Twelve months of accrued interest income

13.Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory?
a. Matching
b. Substance over form
c. Verifiability
d. Accrual basis

14.In an entity’s April 30 statement of financial position, a note receivable was reported as a noncurrent asset and the accrued interest for eight
months was reported as a current assed. Which of the following terms would fit the entity’s note receivable
a. Principal and interest are due December 31, 2012
b. Both principal and interest are payable on December 31, 2012 and
December 31, 2013
c. Both principal and interest are payable on August 31, 2012 and August 31, 2013.
d. Principal is due August 31, 2013, and the interest is due August 31, 2012 and August 31, 2013

15.On July 1, 2013, 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 June
30, 2015. Interest receivable on December 31, 2013 is
a. 5% of the July 1, 2012 present value of the amount due on June 30 2014
b. 4% of the July 1, 2012 present value of the amount due on June 30, 2014
c. 5% of the face amount of the note
d. 4% of the face amount of the note

16. The following selected transactions occurred during the year ended December 31,2012:
Gross Sales (Cash and Credit) - P750,614
Collections from credit customer, net of 2% cash discount - 245,000
Cash Sales - 150,000
Uncollectible accounts written off - 16,000
Credit memos issued to credit customers for sales returns - 8,400
Cash refunds given to cash customers for sales returns - 12,640
Recoveries on accounts receivable written off in previous years (not included in the cash received stated above) - 5,421
At the year-end, the company provides for estimated bad debt losses by crediting the Allowance for Bad Debts account for 2% of net credit sales
What is bad debts expense to be reported for 2012?
a. P11,844
b. P14,744
c. P11,744
d. P11,491
17. Bikko Inc. reported the following balances (after adjustment) at the end of 2013 and 2012:

Total Accounts Receivable

2012 - P96,000
2013 - P105,000
Net Accounts Receivable
2012 - 94,500
2013 - 102,000
During 2013, Bikko wrote off customer accounts totalling P3,200 and collected P800 on accounts previously written off. Bikko’d doubtful accounts
expense for the year ending December 31,2013 is
a. P1,500
b. P3,000
c. P2,400
d. P3,900

18. During the year, McGrady Company made and entry to write-off a P 4, 000 uncollectible account. Before this entry was made, the balance of
accounts receivable was P50, 000 and the balance in the allowance account was P4, 500. The net realizable value of accounts receivable after the
write-off entry was
a. P50, 000
b. P49, 500
c. P41,500
d. P45,500

19. ART Inc. made a P10, 000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on
credit, how much should be recorded as revenue?
a. P9,800
b. P9,900
c. P10,000
d. P10,100

20.Frame Co. has an 8% note receivable dated June 30, 2007, in the original amount of P150, 000. Payments of P50, 000 in principal plus accrued
interest are due annually on July 1, 2008, 2009, 2010. In its June 30, 2009 balance sheet, what amount should Frame report as a current asset for
interest on note receivable?
a. 0
b. P4,000
c. P8,000
d. P12,000

21.On January 1, 2011, Ott Company sold goods to Fox Company. Fox signed a noninterest bearing note requiring payment of P600, 000 annually
for seven years. The first payment was made on January 1, 2011. The prevailing market rate of interest for this type of note at the date of issuance
was 10%. Information of present value factors is as follows:
Present value of 1 at 10% for 6 periods
.56
Present value of 1 at 10% for 7 periods
.51
Present value of ordinary annuity of 1 at 10% for 6 periods
4.36
Present value of ordinary annuity of 1 at 10% for 7 periods
4.87
What should be recorded as sales revenue in January 2011?
a. 3, 216, 000
b. 2, 922, 000
c. 2, 616, 000
d. 2, 142, 000
22.On December 27, 2011, Lily Company sold a building, receiving as consideration a P4, 000 000 noninterest-bearing note due in three years. The
building had a cost of P3,800,000 and the accumulated depreciation was P1,600,000 at the date of sale. The prevailing rate of interest for a note
this type was 12%. In its income statement, what amount of gain should Lily report on the sale? Round PV factor to three decimal places.
a. 1,800,000
b. 200,000
c. 648,000
d. 0

23.SayonKAAYOko Co. sold some machinery to the MAObitaw Co. on January 1, 2011, for which the cash selling price was P7, 582, 000. MAObitaw
Co. entered into an instalment sale contract with
SayonKAAYOko Co. at an interest rate of 10%. The Contract required payments of P2 million a year for over five years, with the first payment on
January 1, 2011. What amount of interest income should be included in SayonKAAYOko Co.’s 2012 using the interest method?
a. P1,000,000
b. 414,020
c. 634,020
d. 0

24.Alamo Company sold one of its factories in January 2, 2013 for seven million. Alamo received a cash down payment of one million and a four-
year, twelve percent note for the balance. The note is payable in equal annual payments of principal and interest of P1,975,400 payable of
December 31 each year until 2016. What is the carrying amount of the note receivable of December 31, 2013?
a. 4, 500, 000
b. 4, 744, 600
c. 4, 624, 600
d. 4, 025, 600

25.On December 31, 2011, Park Company sold used equipment and received a noninterest-bearing note requiring payment of P500,000 annually
for ten years. The first payment is was paid on December 31, 2012 and the prevailing rate of interest for this type of note at the date of issuance is
12%. What is the carrying amount of the note at December 31, 2013 that will be reported at the statement of financial position? Round PV factor to
3 decimal places.
a. 1,610,000
b. 2,825,000
c. 5,000,000
d. 2,483,680

26.On June 30, 2011, Emme Company sold equipment with an original cost of 4,800,000 which was purchased on January 1, 2010 and with an
estimated useful life of 6 with no residual value. As a consideration, Emme company received a noninterest bearing note amounting P4,000,000
due on April 30, 2014. The prevailing market rate of interest for this type of note was 10% at the issuance. The present value of 1 at 10% for 3
periods is 0.75.
In Emme’s income statement, at what amount should be reported as gain or loss or sale of equipment assuming the straight line method of
depreciation is used.
a. 600,000 gain
b. 600,000 loss
c. 1,000,000 gain
d. 1,000,000 loss

27. Using accrual accounting, expenses are recorded and reported only:
a. If they are paid before they are incurred
b. When they are incurred and paid at the same time
c. When they are incurred, whether or not cash is paid
d. If they are paid after they are incurred
28. Which is not one of the three main forms of business organization?
a. Soles proprietorship
b. Creditorship
c. Partnership
d. Company

29. Which f inancial statement reports assets, liabilities and equity?

a. Statement of changes in equity
b. Income statement
c. Balance sheet
d. Cash flow statement