Cleo Company provided the following data for the year ended 2017:

• December 10, 2020 – Sold merchandise to Dominique under credit terms of 2/10, n/30
with invoice price of P102,600 and trade discounts of 10% and 5%.
• December 11, 2020 – Sold merchandise to Michelle, P50,000 under credit terms of 2/10,
n/30.
• December 20, 2020 – Collected the account of Dominique in full.
• December 27, 2020 – Sold merchandise to Jason, P40,000 under credit terms of 2/10, n/30.

Cleo Company uses the net method to account for cash discounts.

REQUIREMENT
1. How much is the sales discount forfeited reported on December 31, 2020?

Dominique = P102,600 x 2% = P2,052

Michelle = P50,000 x 2% = P1,000
Jason = P40,000 x 2% = P800

Dominique’s account was collected within the discount period.

Michelle’s account was not yet collected as of 12/31/2017 and already outside discount period.
Jason’s account was not yet collected as of 12/31/2017, within the discount period.

2. How much is the amortized cost of the Accounts Receivable on December 31, 2020?

Michelle: P50,000
Jason: P39,200
Total amortized cost of accounts receivable: P89,200

3. On October 01, 2017, Elise Company sold its building to Eidelle Company which had carrying
value amounting to P6,750,000. In consideration of the sale, Eidelle Company issued a 5-year,
15%, P6,000,000 promissory note plus cash consideration amounting to P300,000. The terms of
the note call for 5 equal annual payments plus accrued interest based on the beginning outstanding
balance every September 30 starting 2018.

How much is the interest income for the year 2018?

Date Beg. Out. Bal. Nominal Interest Interest Periodic Payment Total Payment
9/30/18 6,000,000.00 15% 900,000.00 1,200,000.00 2,100,000.00
9/30/19 4,800,000.00 15% 720,000.00 1,200,000.00 1,920,000.00
9/30/20 3,600,000.00 15% 540,000.00 1,200,000.00 1,740,000.00
9/30/21 2,400,000.00 15% 360,000.00 1,200,000.00 1,560,000.00
9/30/22 1,200,000.00 15% 180,000.00 1,200,000.00 1,380,000.00

Interest Income for 2018

900,000.00 9/12 675,000.00
720,000.00 3/12 180,000.00
TOTAL INTEREST 855,000.00

Allen Company started business at the beginning of the 2020. Records showed that merchandise
purchased for the year amounted to P4,500,000 and the ending inventory was P750,000. Goods were
sold at 40% based on cost. The total sales comprised 80% sales on account and 20% cash sales. Total
collections from customers, excluding cash sales, amounted to P3,000,000. The entity established an
allowance for doubtful accounts estimated at 5% of its outstanding accounts receivable.

REQUIREMENT
How much is the uncollectible accounts expense for 2020?
What is the amortized cost of the accounts receivable in 2020?
4. How much is the uncollectible accounts expense for 2020?

Purchases 4,500,000
Ending Inventory 750,000
CGS 3,750,000
Sales to CGS Ratio 1.4
Sales 5,250,000
Credit sale ratio 80%
Credit Sales 4,200,000
Cash collection from credit customers 3,000,000
Accounts Receivable, ending 1,200,000
Estimated uncollectible 5%
Allowance for uncollectible accounts /
Uncollectible Accounts Expense 60,000

5. What is the amortized cost of the accounts receivable in 2020?

Accounts Receivable, ending 1,200,000

Allowance for Uncollectible Accounts 60,000
Amortized Cost 1,140,000

MULTIPLE CHOICE

6. A Company sold its merchandise on credit with a list price of P157,500 and a trade discount of
10%, with terms 2/10, n/30. Under the gross method in accounting for cash discount, how much
is the recorded accounts receivable?

A. 157,500
B. 141,750
C. 138,915
D. 154,350

ANS: B

P157,500 x .90 = P141,750 recorded accounts receivable

7. A Company sold its merchandise on credit with a list price of P157,500 and a trade discount of
10%, with terms 2/10, n/30. Under the gross method in accounting for cash discount, how much
is the recorded sales?

A. 157,500
B. 141,750
C. 138,915
D. 154,350

ANS: B

P157,500 x .90 = P141,750 recorded sales

8. A Company sold its merchandise on credit with a list price of P157,500 and a trade discount of
10%, with terms 2/10, n/30. Under the allowance method in accounting for cash discount, how
much is the recorded accounts receivable?

A. 157,500
B. 141,750
C. 138,915
D. 154,350

ANS: B
 P157,500 x .90 = P141,750 recorded accounts receivable

9. B Company had the following transactions related to its accounts receivable:

Accounts Receivable, 12/31/19 1,950,000

Credit sales for 2020 8,100,000
Collections from customers (including recoveries 7,125,000
amounting to P37,500) in 2020
Written off accounts in 2020 187,500
Estimated uncollectible accounts receivable per aging 247,500

How much is the accounts receivable before any allowance for uncollectible accounts?

A. 2,737,500
B. 2,775,000
C. 2,925,000
D. 2,985,000

ANS: B

Accounts Receivable, 12/31/19 1,950,000

Credit sales for 2020 8,100,000
Collections from customers (including recoveries amounting to P37,500) in 2020 (7,125,000)
Recovery 37,500
Written off accounts in 2020 (187,500)
Accounts Receivable, 12/31/20 2,775,000

10. The following information relates to C Company’s accounts:

Gross profit rate based on sales 20%

Accounts Receivable, 12/31/19 120,000
Collection on Accounts Receivable, 2020 645,000
Cost of goods available for sale, 2020 690,000
Inventory, 12/31/2020 150,000

Assuming all sales were on account, what is the company’s Accounts Receivable balance on
December 31, 2020?

A. 180,000
B. 150,000
C. 135,000
D. 75,000

ANS: B

Cost of goods available for sale, 2020 690,000

Inventory, 12/31/2020 150,000
CGS 540,000
CGS ratio to sales 80%
Sales 675000
Accounts Receivable, 12/31/19 120,000
Collection on Accounts Receivable, 2020 645,000
Accounts Receivable, 12/31/20 150,000

On January 1, 2020, Toyota Corporation sold a piece of equipment costing P570,000 with accumulated
depreciation of P240,000 on the date of sale. In consideration of the sale, Toyota Corporation received
a P600,000, non-interest-bearing promissory note, due on December 31, 2022. There was no
established exchange price for the equipment, and the note had no ready market. However, the
prevailing interest rate for similar types of notes was 10%.

Present value factor of 1 at 10% for 3 periods is .75.

11. How much is the interest income reported in 2020?

A. 210,000
B. 49,500
C. 45,000
D. 20,250

ANS: C

Present value of the note

600,000 0.75 450,000 Total Present Value
600,000 Face Value
150,000 Discount on Notes Receivable

DATE EFFECTIVE INTEREST AMORTIZED COST

10%
1/1/20 450,000
12/31/20 45,000 495,000
12/31/21 49,500 544,500
12/31/22 55,500 600,000

12. What is the amortized cost of the note on December 31, 2021?

A. 544,500
B. 600,000
C. 450,000
D. 495,000

ANS: A

DATE EFFECTIVE INTEREST AMORTIZED COST

10%
1/1/20 450,000
12/31/20 45,000 495,000
12/31/21 49,500 544,500
12/31/22 55,500 600,000

Honda Corporation received a 6%, interest-bearing notes receivable dated October 1, 2020 amounting
to P4,500,000. Payments of P1,500,000 plus accrued interest are due annually on September 30,
starting 2021 until 2023.

13. How much is the total amount collected by Honda Corporation on September 30, 2021?

A. 1,770,000
B. 1,680,000
C. 1,590,000
D. 4,500,000

ANS: A

Date Beg. Out. Bal. Nominal Interest Interest Periodic Payment Total Payment
9/30/21 4,500,000 6% 270,000 1,500,000 1,770,000
9/30/22 3,000,000 6% 180,000 1,500,000 1,680,000
9/30/23 1,500,000 6% 90,000 1,500,000 1,590,000

14. How much is the interest income for the year ended, December 31, 2020?
 A. 67,500
B. 270,000
C. 180,000
D. 90,000

ANS: A

Interest Income for 12/31/2020

270,000 3/12 67,500

15. Hope Company had the following information related to its 2020 operations:

Accounts Receivable, 01/01/2020 6,000,000

Collection of accounts receivable 12,600,000
Cash sales 3,000,000
Inventory, 01/01/2020 7,200,000
Inventory, 12/31/2020 6,600,000
Purchases 12,000,000
Gross profit on sales 6,300,000

What is the balance of the accounts receivable on December 31, 2020?

A. 12,300,000
B. 9,300,000
C. 3,000,000
D. 6,300,000

ANS: B

Inventory, 01/01/2020 7,200,000

Inventory, 12/31/2020 (6,600,000)
Purchases 12,000,000
CGS 12,600,000
Gross profit on sales 6,300,000
Sales 18,900,000
Accounts Receivable, 01/01/2020 6,000,000
Collection of accounts receivable (12,600,000)
Accounts Receivable, 12/31/2020 12,300,000

Per blackboard, answer is B. Correct answer is A.

Corrected in the Blackboard as of 10/14/2020.

Joker Company reported the following for the current year 2020:

01/01/2020 12/31/2020
Accounts Receivable 1,800,000
Allowance for uncollectible accounts 90,000
Sales 12,000,000
Cash collected from customers 10,500,000

The cash collections included a recovery of P15,000 from a customer whose account had been written
off as worthless in 2019. During 2020, it was necessary to recognize uncollectible accounts expense
of P150,000, and write off worthless accounts of P45,000. On December 1, 2020, a customer settled
an account by issuing a 12%, 6-month note for P600,000.

16. What is the adjusted balance of the Allowance for Uncollectible Accounts on December 31, 2020?

A. 210,000
B. 140,000
C. 90,000
D. 60,000
 ANS: A

17. What is the amortized cost of the Accounts Receivable on December 31, 2020?

A. 2,460,000
B. 2,670,000
C. 2,445,000
D. 2,505,000

ANS: A

Accounts receivable, 01/01/20 1,800,000

Sales 12,000,000.00
Cash collection from customers (10,500,000.00)
Recovery 15,000.00
Written off accounts (45,000.00)
Customer note (600,000.00)
Accounts receivable, 12/31/20 2,670,000.00

Allowance for uncollectible accounts, 01/01/20 90,000.00

Recovery 15,000.00

Uncollectible accounts expense 150,000.00

Written off accounts (45,000.00)
Allowance for uncollectible accounts, 12/31/20 210,000.00

Amortized Cost 2,460,000.00

18. CA5105 Company prepared an aging of its accounts receivable on December 31, 2020 and
determined that the amortized cost of the Accounts Receivable was P3,750,000. Additional
information was made available:

Allowance for uncollectible accounts, 01/01/2020 420,000

Accounts written off as worthless 345,000
Accounts Receivable, 12/31/2020 4,050,000
Recovery of accounts previously written off 75,000

What amount should be recognized as Uncollectible Accounts Expense for the year 2020?

A. 150,000
B. 300,000
C. 225,000
D. 345,000

ANS: A

Accounts Receivable, 12/31/2020 4,050,000

Amortized Cost 3,750,000
Allowance for uncollectible accounts, 12/31/20 300,000
Allowance for uncollectible accounts, 01/01/20 (420,000)
Written off accounts 345,000
Recovery of accounts (75,000)
Uncollectible accounts expense 150,000
Batman Company uses the allowance method of accounting for uncollectible accounts. The following
summary schedule was prepared from an aging of its accounts receivable outstanding on December
31, 2020:

Number of days outstanding Amount Probability of collection

0 – 30 7,500,000 .98
31 – 60 3,000,000 .90
Over 60 1,500,000 .80

The following information was also made available:

Credit sales for the year 60,000,000

Allowance for uncollectible accounts
Balance, 12/31/2020 30,000 (dr.)

19. What is the uncollectible accounts expense for the year 2020?

A. 705,000
B. 720,000
C. 750,000
D. 780,000

ANS: D

Number of days outstanding Amount Probability of collection Uncollectible Accounts

0 – 30 7,500,000 0.98 150,000
31 – 60 3,000,000 0.9 300,000
Over 60 1,500,000 0.8 300,000
750,000 Allowance for uncollectible accounts, 12/31/20
30,000 Allowance for uncollectible accounts, 01/01/20
780,000 Uncollectible accounts expense

20. What is the amortized cost of the accounts receivable?

A. 11,280,000
B. 12,000,000
C. 7,500,000
D. 3,000,000

ANS: A

Accounts Receivable, 12/31/20 12,000,000

Allowance for uncollectible accounts, 12/31/20 750,000

Amortized cost 11,250,000

No correct answer among the choices. Already given as bonus in blackboard.

21. Receivable from officers, employees, or affiliated companies should be reported in the statement
of financial position as:

A. Current asset, if collectible within 12 months.

B. Non-current assets only.
C. Trade notes and accounts receivable if they otherwise qualify as current assets.
D. Offsets to capital

ANS: A

22. Which of the following is not a valid basis for using trade discounts as adjustments to list price?

A. To avoid frequent changes in price catalogs.

B. To encourage collection of account within a specified period.
C. To make price differentials amount different classes of customers.
 D. To encourage customers to buy in big quantities.

ANS: B

23. Under the allowance method of recording cash discounts, sales discounts are recorded:

A. When offered at the date of sale.

B. When the account is collected within the discount period.
C. Only when not taken within the discount period.
D. When the customer pays beyond the discount period.

ANS: A

24. An entity uses the allowance method of accounting for uncollectible accounts. What is the effect
on profit and amortized cost of accounts receivable of the entry to write off a customers’ account?

A. None; none.
B. Decrease; decrease.
C. Increase; increase.
D. Decrease; none.

ANS: A

25. When the allowance method of recognizing uncollectible accounts expense is used, the entries at
the time of collection of an account previously written off would:

A. Increase profit.
B. Decrease profit.
C. Increase the allowance for uncollectible accounts.
D. Increase the amortized cost of accounts receivable.

ANS: C

26. If a company employs the gross method of recording accounts receivable from customers, then
sales discounts taken should be reported as:

A. A deduction from sales in the statement of comprehensive income.

B. An item of other expense in the statement of comprehensive income.
C. A reduction from accounts receivable in determining the net realizable value of accounts
receivable.
D. A deduction from the cost of goods sold in the statement of comprehensive income.

ANS: A

27. If a company employs the net method of recording accounts receivable from customers, then sales
discounts not taken should be reported as:

A. A deduction from sales in the statement of comprehensive income.

B. An item of other expense in the statement of comprehensive income.
C. An item of other income in the statement of comprehensive income.
D. A deduction from the gross accounts receivable to arrive at amortized cost.

ANS: C

28. What is the initial recognition basis of a non-interest bearing note received in exchange for
property?

A. At fair value of the property or note.

B. At maturity value of the note.
C. At face value of the note.
D. At carrying amount of the property.

ANS: A
29. At the beginning of 2019, Evans Company received a 3-year zero-interest bearing, P600,000 note
receivable for merchandise sold. The market rate for equivalent notes was 8% at that time. Evans
reported this note as charge to notes receivable and a credit to sales revenue for P600,000. What
effect did this accounting for the note have on Evan’s profit for 2019, 2020, 2021, and its retained
earnings at the end of 2021, respectively?

A. Overstate, understate, understate, understate.

B. Overstate, overstate, overstate, overstate.
C. Overstate, overstate, understate, no effect.
D. Overstate, understate, understate, no effect.

ANS: D

30. How would you describe the total amount determined by an entity in this series of computations
based on aging schedule of accounts receivable: 2% of the total peso balance of accounts from 1-
60 days past due, plus 5% of the total peso balance of accounts from 61-120 days past due and so
on?
A. It is the amount of uncollectible accounts expense reported in the statement of comprehensive
income.
B. It is the amount of the adjusting entry for the allowance for uncollectible accounts at year-end.
C. It is the required credit balance of the allowance for uncollectible accounts at year-end.
D. This amount plus the total amount of accounts written-off during the year is the amount of
uncollectible accounts expense.

ANS: C

31. A company writes-off as uncollectible an account receivable from a bankrupt customer. The
company has an adequate amount in its Allowance for Bad debts. This transaction will:

A. Decrease the profit for the period.

B. Decrease total assets.
C. Decrease the amount of owner’s equity.
D. Have no effect on total current assets.

ANS: D

32. Which of the following is classified as Trade Receivables?

A. Advances to the company president.

B. Advances to ABC Company – a parent company.
C. Subscriptions for the entity’s ordinary share capital.
D. Receivable from customers for goods sold on credit.

ANS: D

33. Which of the following is reported as current assets in the Statement of Financial Position?

A. Customers with credit balances.

B. Receivable arising from the sale of equipment.
C. Advances to related companies.
D. Accounts payable with debit balances.

ANS: D

34. A Company sold to B Company merchandise with selling price of P100,000 with terms 2/10, n/15
on December 15, 2016. The account of B Company is still outstanding as of December 31, 2016
and is considered by A Company as collectible. Which of the following is true?

A. If A Company uses the gross method of accounting for cash discount, the company will
recognize Sales Discount Forfeited amounting to P2,000.
B. If A Company uses the net method of accounting for cash discount, the company will
recognize Sales Discount of P2,000.
C. If A Company uses the allowance method of accounting for cash discount, the company will
recognize Sales Discount Forfeited of P2,000.
 D. Cannot be determined due to insufficient information.

ANS: C

35. Under the Allowance Method of accounting for cash discounts:

A. Cash discounts are recognized when not taken.

B. Cash discounts are recognized when taken.
C. Cash discounts are recognized when offered.
D. Cash discounts are not recognized in the books.

ANS: C

36. Trade discounts:

A. Are used to encourage bulk purchases from customers.

B. Are used to encourage prompt payment from customers.
C. Are recognized in the books by debiting Trade Discount account.
D. Are recognized in the books by crediting Trade Discount account.

ANS: A

37. What is the effect of failing to amortize Discount on Notes Receivable on Net Income and Total
Assets?

A. Overstate, Overstate.
B. Understate, Understate.
C. Understate, Overstate.
D. Overstate, Understate.

ANS: B

38. These are trade receivables which are not evidenced by a formal agreement or note and are
considered as unsecured open accounts.

A. Accounts Receivable
B. Notes Receivable
C. Advances to Affiliates
D. Advances to Employees

ANS: A

39. What is the effect on the amortized cost of the Accounts Receivable before and after writing off
the uncollectible account?

A. Increase
B. Decrease
C. No effect
D. Cannot be determined due to insufficient information

ANS: C

40. When a firm writes off an uncollectible customer account under the allowance method:

A. The amortized cost of accounts receivable decreases

B. Total net current assets will decrease
C. The cash account will decrease
D. The amortized cost remains unchanged.

ANS: D