INTERMEDIATE ACCOUNTING

LONG QUIZ
NAME: Date:
Professor: Section: Score:

1. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers representing employee loans
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

2. When the allowance method of recognizing bad debts expense is used, the entry to record the
write-off of a specific uncollectible account would decrease
a. the allowance for doubtful accounts.
b. the profit for the period.
c. the net realizable value of accounts receivable.
d. the working capital.

3. Information from the records of Stormfall Co. is shown below:

● Accounts receivable - net of ₱8,000 credit balance in
customers' accounts 100,000
● Notes receivable (trade) 15,000
● Notes receivable (non-trade), ₱15,000 collectible
within one year 30,000
● Dividends receivable 2,000
● Subscriptions receivable 2,000
● Advances to officers and employees (due in 10
months) 4,000
● Accounts payable - net of ₱10,000 debit balance in
suppliers' accounts 3,000

How much are the following?

Total trade receivables Total current receivables
a. 132,000 154,000
b. 123,000 154,000
c. 143,000 162,000
d. 123,000 145,000

4. Soap Co. has the following information on December 31, 20x1 before any year-end adjustments.
Allowance for doubtful accounts, Jan. 1 30,400
Write-offs 19,000
Recoveries 3,800
Sales (including cash sales of ₱380,000) 2,280,000
Sales returns and discounts (including ₱3,800 sales
22,800
returns on cash sales)
Accounts receivable, Dec. 31 570,000
 Percentage of credit sales 3%

How much is the recoverable historical cost of accounts receivable?

a. 498,370
b. 502,630
c. 486,780
d. 478,970

5. Washing Co. has the following information on December 31, 20x1 before any year-end
adjustments.
Accounts receivable, Jan. 1 80,000
Net credit sales 270,000
Collections from customers (including recoveries) 140,000
Allowance for doubtful accounts, Jan. 1 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%

How much is the bad debt expense?

a. 4,250
b. 4,300
c. 4,550
d. 10,300

6. Fabric Co. sells to wholesalers on terms of 2/15, net 30. An analysis of Fabric Co.’s trade
receivable balances on December 31, 20x1, revealed the following:
Age in days Receivable balances
0 – 15 180,000
16 – 30 108,000
31 – 60 90,000
61 – 90 72,000
91 – 120 54,000
121 – 150 36,000
Total accounts receivables 540,000

Fabric Co. uses the aging of receivables method. The estimated percentages of collectability based on
past experience are shown below:
Accounts that are overdue for less than 31 days 97%
Accounts that are overdue 31 – 60 days 90%
Accounts that are overdue 61 – 90 days 85%
Accounts that are overdue 91 – 120 days 65%
Accounts that are overdue for over 120 days 40%
The allowance for doubtful accounts has a balance of ₱18,000 as of January 1, 20x1. Write-offs and
recoveries during the year amounted to ₱6,000 and ₱3,000, respectively.
How much is the doubtful accounts expense for the year?
a. 15,600
b. 9,000
c. 22,600
d. 28,200

Use the following information for the next two questions:

ABC Co. has the following information on December 31, 20x1 before any year-end adjustments.
Net credit sales 6,300,000
Accounts receivable, December 976,500
Allowance for doubtful accounts, Dec. 31 (before any
53,550
necessary year-end adjustments)
Percentage of credit sales 2%

The aging of receivables is shown below:

Days outstanding Receivable balances % uncollectible
0 – 60 378,000 1%
61 – 120 283,500 2%
Over 120 315,000 6%
Total accounts receivables 976,500  

Additional information:
● ABC Co. uses the percentage of credit sales in determining bad debts in monthly financial reports
and the aging of receivables for its annual financial statements.
● Accounts written-off during the year amounted to ₱119,700 and accounts recovered amounted to
₱28,350.
● As of December 31, ABC Co. determined that ₱63,000 accounts receivable from a certain customer
included in the “61-120 days outstanding” group is 95% collectible and a ₱31,500 account
included in the “Over 120 days outstanding” group is worthless and needs to be written-off.

7. How much is the balance of the allowance for doubtful accounts on January 1, 20x1?
a. 12,600
b. 18,900
c. 19,200
d. 23,400

8. How much is the adjusted bad debt expense to be reported in the year-end financial statements?
a. 123,300
b. 128,700
c. 143,300
d. 132,300

9. ABC Co. has the following information before any year-end adjustment.
Accounts receivable, Dec. 31 600,000
Allowance for doubtful accounts, Jan. 1 18,000 (Dr.)
Percentage of receivables 2%

Write-offs and recoveries during the year amounted to ₱22,800 and ₱3,000, respectively. How much
is the bad debts expense for the year?
a. 13,800
b. 26,800
c. 49,800
d. 52,800

Use the following information for the next three questions:

On January 1, 20x1, Mojo Co. sold transportation equipment with a historical cost of ₱20,000,000 and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000 and a noninterest-bearing
note receivable of ₱8,000,000 due in 4 equal annual installments starting on December 31, 20x1 and
every December 31 thereafter. The prevailing rate of interest for this type of note is 12%.

10. How much is the interest income in 20x1?

a. 728,946
b. 678,334
c. 728,964
d. 704,236

11. How much is the current portion of the receivable on December 31, 20x1?
a. 1,271,036
b. 1,423,560
c. 3,380,102
d. 1,594,388

12. How much is the carrying amount of the receivable on December 31, 20x2?
a. 4,803,663
b. 3,380,103
c. 6,074,699
d. 6,000,000

Use the following information for the next three questions:

On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱12,000,000 and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a noninterest-bearing
note receivable of ₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and
every January 1 thereafter. The prevailing rate of interest for this type of note is 12%.

13. How much is the interest income in 20x1?

a. 408,230
b. 278,334
c. 328,964
d. 288,220
14. How much is the carrying amount of the receivable on December 31, 20x1?
a. 1,690,510
b. 892,857
c. 2,690,051
d. 1,594,388

15. How much is the carrying amount of the receivable on January 1, 20x3?
a. 892,857
b. 3,380,102
c. 6,074,699
d. 6,000,000

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold machinery with historical cost of ₱3,000,000 and accumulated
depreciation of ₱900,000 in exchange for a 3-year, ₱2,100,000 noninterest-bearing note receivable due
in equal semi-annual payments every July 1 and December 31 starting on July 1, 20x1. The
prevailing rate of interest for this type of note is 10%.

16. How much is the interest income in 20x1?

a. 88,825
b. 177,649
c. 128,964
d. 164,591

17. How much is the carrying amount of the receivable on December 31, 20x1?
a. 1,241,083
b. 982,378
c. 1,690,051
d. 1,594,388

18. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with accumulated depreciation
of ₱1,100,000 in exchange for a 3-year, ₱900,000 noninterest-bearing note receivable due as
follows:
Date Amount of installment
December 31, 20x1 400,000
December 31, 20x2 300,000
December 31, 20x3 200,000
Total 900,000

The prevailing rate of interest for this type of note is 10%. How much is the carrying amount of
the receivable on December 31, 20x1?
a. 467,354
b. 438,016
c. 376,345
d. 428,346
Use the following information for the next two questions:
On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list price of ₱2,200,000 and a
cash price of ₱2,000,000 in exchange for a ₱2,400,000 noninterest-bearing note due on December 31,
20x3.

19. How much is the initial measurement of the receivable?

a. 1,800,000
b. 2,200,000
c. 2,000,000
d. 2,400,000

20. How much is the carrying amount of the receivable on December 31, 20x1?
a. 2,125,390
b. 2,135,341
c. 2,098,343
d. 2,000,000

21. An entity determines that the credit risk on a loan receivable has not increased significantly since
initial recognition. The entity should recognize loss allowance equal to
a. the 12-month expected credit losses on the instrument.
b. the lifetime expected credit losses on the instrument.
c. sum of a and b
d. none; credit losses should be recognized only when there is objective evidence of a loss
event.

22. According to PFRS 9, it refers to the expected credit losses that result from all possible default
events over the expected life of a financial instrument.
a. 12-month expected credit losses
b. Lifetime expected credit losses
c. Loss allowance
d. Absolute loss

23. When the required balance of the loss allowance decreases,

a. the entity recognizes gain.
b. the entity recognizes loss.
c. the entity recognizes unearned interest to be amortized over the remaining term of the
instrument.
d. the entity recognizes a deferred charge to be amortized over the remaining term of the
instrument.

24. Interest income is computed on the net carrying amount (i.e., gross carrying amount less loss
allowance) of an instrument that is under which stage of the ‘three-bucket’ approach of PFRS 9’s
expected credit loss model?
 a. Stage 1
b. Stage 2
c. Stage 3
d. Stage 4

25. After impairment testing, interest income on a credit-impaired note receivable is computed by
a. multiplying the present value of the note by the current market rate at year-end.
b. multiplying the present value of the note by the rate used in impairment testing.
c. multiplying the face value of the note by the rate used in impairment testing.
d. no interest income will be recognized because the note is already impaired.

26. Which of the following most likely does not result to the derecognition of a financial asset?
a. The contractual rights to the cash flows from the financial asset expire.
b. The creditor cancels the financial asset.
c. The cash flows from the financial asset become uncollectible because of loss events.
d. The entity transfers the contractual rights to receive the cash flows of the financial asset but
retains the obligation to repurchase the financial asset at a future date.

27. On January 1, 20x1, ABC Bank extended a 12%, ₱1,000,000 loan to XYZ, Inc. Principal is due on
January 1, 20x5 but interests are due annually every January 1. ABC Bank incurred direct loan
origination costs of ₱88,394 and indirect loan origination costs of ₱18,000. In addition, ABC Bank
charged XYZ a 2.5-point nonrefundable loan origination fee. How much is the interest income in
20x2?
a. 104,973
b. 105,364
c. 106,339
d. 136,661

Use the following information for the next two questions:

On January 1, 20x1, ABC Bank extended a ₱900,000 loan to XYZ, Inc. Principal is due on December
31, 20x5 but 12% interest is due annually every December 31.

On December 31, 20x3, XYZ, Inc. was delinquent and it was ascertained that the loan is impaired.
ABC Bank assessed that interests accruing on the loan will not be collected; however, the principal is
expected to be received in three equal annual installments starting on December 31, 20x4. Accrued
interest receivable on December 31, 20x3 amounted to ₱100,000. The current market rate on
December 31, 20x3 is 14%.

28. How much is the balance of allowance for impairment loss on December 31, 20x3 immediately
after impairment testing?
a. 279,460
b. 303,510
c. 203,510
d. 179,460
29. How much is the interest income in 20x5?
a. 86,465
b. 64,810
c. 60,841
d. 0

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. received a ₱1,000,000 note receivable from XYZ, Inc. Principal
payments of ₱200,000 and interest at 12% are due annually at the end of each year for 5 years. The
first payment starts on December 31, 20x1.

XYZ, Inc. made the required payments during 20x1 and 20x2. However, during 20x3 XYZ, Inc.
began to experience financial difficulties, requiring ABC Co. to reassess the collectability of the note
on December 31, 20x3. Because of the loss event, ABC Co. did not accrue the interest on December
31, 20x3. The current rate of interest on December 31, 20x3 is 10%. ABC Co. made the following cash
flow projections on December 31, 20x3:

Date of expected receipt Amount of cash flow

January 1, 20x4 200,000
January 1, 20x5 150,000
January 1, 20x6 150,000

30. How much is the impairment loss recognized in 20x3?

a. 146,492
b. 195,082
c. 139,669
d. 181,518

31. How much is the interest income in 20x4?

a. 54,421
b. 30,421
c. 16,071
d. 0

Use the following information for the next two questions:

ABC Co. transfers loans receivable with a fair value of ₱500,000 and carrying amount of ₱420,000.
ABC Co. obtains an option to purchase similar loans and assumes a recourse obligation to
repurchase similar loans. ABC Co. also agrees to provide a floating rate of interest to the transferee
company. The assets and liabilities received as consideration for the transfer are listed below:

Assets received & liabilities assumed Fair values

Cash proceeds 250,000
Interest rate swap 120,000
Call option 60,000
 Recourse obligation 120,000

32. How much is the gain (loss) on the derecognition of the financial asset?
a. 30,000
b. 7,500
c. (110,000)
d. (135,000)

33. Use the information in the immediately preceding problem above except that ABC Co. agreed to
service the loans without explicitly stating the compensation. The fair value of the service is
₱25,000. How much is the gain (loss) on the derecognition of the financial asset?
a. 30,000
b. 7,500
c. (110,000)
d. (135,000)

34. On March 1, 20x1, ABC Co. assigned its ₱1,000,000 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,
₱500,000 were collected from the receivables. Sales returns and discounts amounted to ₱150,000.
How much net cash is received from the assignment transaction on March 1, 20x1?
a. 735,000
b. 730,000
c. 1,230,000
d. 1,235,000

Fact pattern for the next three questions:

ABC Co. factored ₱100,000 accounts receivable to XYZ Financing Corp. on a without recourse basis
on January 1, 20x1. XYZ charged a 4% service fee and retained a 10% holdback to cover expected
sales returns. In addition, XYZ charged 12% interest computed on a weighted average time to
maturity of the receivables of 73 days over 365 days.

35. How much net proceeds is received from the factoring on January 1, 20x1?
a. 100,320
b. 85,600
c. 83,600
d. 88,300

36. How much is the cost of factoring assuming all of the receivables were collected?
a. 6,400
b. 2,400
c. 16,400
d. 12,400

37. Use the ‘fact pattern’ above except that ABC Co. factored the receivables on a with recourse
basis. ABC Co. determines that the recourse obligation has a fair value of ₱3,000. How much is
 the loss on sale of receivables recognized on January 1, 20x1 assuming the factoring was made
on a casual basis?
a. 3,000
b. 9,400
c. 19,400
d. 6,400

38. On October 1, 20x1, ABC Co. discounted a one-year, ₱600,000, 12% note, received from a
customer on January 1, 20x1, with a bank at 14% on a without recourse basis. How much is the
loss on discounting?
a. 4,960
b. 5,250
c. 4,690
d. 5,520

39. On July 1, 20x1, ABC Co. discounted a 90-day, ₱800,000, 12% note, received from a customer on
June 1, 20x1, with a bank at 16% on with recourse basis. The discounting is treated as conditional
sale. The bank uses 365 days per year in computing for discounts. On August 30, 20x1 (maturity
date), the maker of the note defaulted and the bank charged ABC Co. the maturity value of the
note plus a ₱3,000 protest fee. How much is transferred to accounts receivable due to the
dishonor?
a. 826,671
b. 823,671
c. 827,000
d. 862,671

40. On July 1, 20x1, Going Home Co. discounted its own note of ₱200,000 with a bank at 10% for one
year. How net proceeds did Going Home Co. receive from the transaction?
a. 180,000
b. 190,000
c. 200,000
d. 0
Where: x% again is the effective interest rate.

The formula was derived based on our expectation that the effective interest rate is somewhere between
6% and 7%.Notice that the lower rate appears in both the numerator and denominator of the formula
while x% appears in the numerator.

Let us substitute the amounts of present values computed earlier on the formula.

2,000,000 - 2,015,086 = (15,086) = 0.2695

1,959,115 - 2,015,086 (55,970)

The amount computed is added to 6% to derive the effective interest rate. The effective interest rate is
6.2695% (6% + .2695%).

If other methods or tools were used, such as a financial calculator or spreadsheet application, the exact
rate is 6.265856927%.

The amortization table using 6.2695% as the effective interest rate is presented below.
Unearned
Date Interest income Present value
interest
Jan. 1, 20x1 400,000 2,000,000
Dec. 31, 20x1 125,390 274,610 2,125,390
Dec. 31, 20x2 133,251 141,359 2,258,641
Dec. 31, 20x3 141,606 -247 2,400,247

Notice that there is still a slight difference of ₱247. However, if this is deemed immaterial, we can regard
the computed rate as the effective interest rate.

1. A
2. B
3. A
4. C
5. B
6. D

7. A
Solution:
The initial carrying amount of the loan is computed as follows:
Principal amount 1,000,000
Direct origination cost 88,394
 Origination fee (1,000,000 x 2.5%) (25,000)
Initial carrying amount of loan receivable 1,063,394

⮚ The effective interest is computed as follows:

We know that there is premium because the initial carrying amount of the financial instrument is more
than the face amount. Accordingly, the effective interest rate must be less than the nominal rate of 12%.
Using trial and error, let us try 10%.

Future cash flows x PV factor @ x% = Present value of note

First trial (using 10%):

⮚ (1,000,000 X PV of 1 @10%, n=3) + (120,000 x PV of ordinary annuity @12%, n=3) = 1,063,394
⮚ (1,000,000 x 0.68301) + (120,000 x 3.16987) = 1,063,394
⮚ (683,010 + 380,384) = 1,063,394 equals 1,063,394

❖ Conclusion: The effective interest rate is 10%.

⮚ Amortization table:
Date Collections Interest income Amortization Present value
1/1/x1 1,063,394
1/1/x2 120,000 106,339 13,661 1,049,733
1/1/x3 120,000 104,973 15,027 1,034,707
1/1/x4 120,000 103,471 16,529 1,018,177
1/1/x5 120,000 101,818 18,182 999,995

8. D
Solution:
Estimated future cash flows (900K ÷ 3 equal annual installments) 300,000
Multiplied by: PV of ordinary annuity at 12%, n= 3 2.4018
Present value of estimated future cash flows 720,540

Present value of estimated future cash flows 720,540

Carrying amount before impairment (900K + 100K) (1,000,000)
Impairment loss (279,460)

Allowance
Dec. 31, 20x3

Impairment loss 279,460

Interest receivable 100,000
Allowance for impairment 179,460

9. C
Solution:
Date Collections Interest income Amortization Present value
12/31/x3 720,540
 12/31/x4 300,000 86,465 213,535 507,005
12/31/x5 300,000 60,841 239,159 267,845
12/31/x6 300,000 32,141 267,859 (13)

10. A
Solution:
Amount of cash
Date PV of 1 @12%, n=0, 1 and 2 Present value
flow
Jan. 1, 20x4 200,000 1.00 200,000
Jan. 1, 20x5 150,000 0.89285714286 133,929
Jan. 1, 20x6 150,000 0.79719387755 119,579
453,508

Present value 453,508

Carrying amount (1M - 200K - 200K) (600,000)
Impairment loss (146,492)

11. B
Solution:
Date Collections Interest income Amortization Present value
12/31/x3 453,508
1/1/x4 200,000 - 200,000 253,508
1/1/x5 150,000 30,421 119,579 133,929
1/1/x6 150,000 16,071 133,929 -

12. C
Solution:
Date Cash 250,000
Interest rate swap 120,000
Call option 60,000
Loss on transfer of loans (squeeze) 110,000
Loans receivable (carrying amount) 420,000
Recourse obligation 120,000

13. D
Solution:
Date Cash on hand 250,000
Interest rate swap 120,000
Call option 60,000
Loss on transfer of loans (squeeze) 135,000
Loans receivable (carrying amount) 420,000
Recourse obligation 120,000
 Liability on service obligation 25,000

14. B
Solution:
Assigned accounts
receivable 1,000,000
Multiply by: 75%
Principal amount of loan 750,000
Service fee (2% x 1M) (20,000)
Net proceeds 730,000

15. C
Solution:
Account receivable factored 100,000
Service charge (100,000 x 4%) (4,000)
Factor’s holdback (100,000 x 10%) (10,000)
Interest charge (100,000 x 12% x 73/365) (2,400)
Proceeds from factoring 83,600

16. A
Solution:
Service charge (100,000 x 4%) 4,000
Interest charge (100,000 x 12% x 73/365) 2,400
Cost of factoring 6,400

17. B
Solution:
Jan. 1, 20x1 Cash (see previous solution) 83,600
Factor’s holdback 10,000
Loss on factoring (squeeze) 9,400
Account receivable 100,000
Liability on recourse obligation 3,000

18. D
Solution:
Maturity value = 600,000 + (600,000 x 12%)
Maturity value = 672,000

Discount period = full term – expired term

Discount period = 12 months – 9 months (Jan. 1 to Oct. 1)
Discount period = 3 months
Discount = Maturity value x Discount rate x Discount period
Discount = 672,000 x 14% x 3/12
Discount = 23,520

Net proceeds = Maturity value - Discount

Net proceeds = 672,000 – 23,520
Net proceeds = 648,480

Interest income = accrued interest as of date of discounting

Interest income = 600,000 x 12% x 9/12
Interest income = 54,000

Oct. 1, Cash on hand (equal to net proceeds) 648,480

20x1 Loss on discounting (squeeze) 5,520
Note receivable 600,000
Interest income 54,000

19. A
Solution
Maturity value [800K + (800K x 12% x 90/365)] 823,671
Protest fees 3,000
Amount transferred to accounts receivable 826,671

20. A (200,000 x 90%) = 180,000