RECEIVABLES – THEORIES

1. Receivables from officers, employees, or affiliated companies should be

reported in the statement of financial position as
A. Current assets if collectible within twelve months.
B. Non-current assets only.
C. Trade notes and accounts receivable of they otherwise qualify as
current assets.
D. Offset to capital.

2. Which of the following is not a valid basis for using trade discounts as
adjustment 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 among different classes of customers.
D. To encourage customers to buy in big quantities.

3. 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.

4. 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 customer’s account?

Profit Amortized Cost of Accounts Receivable

A. None None
B. Decrease Decrease
C. Increase Increase
D. Decrease None

5. 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 in profit.
B. Decrease in profit.
C. Increase in the allowance for uncollectible accounts.
D. Increase in the amortized cost of accounts receivable.
6. 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 deduction 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.

7. 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.

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

9. At the beginning of 2019, Evans Company received a three-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 a 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

10. How would you describe the total amount determined by an entity in this
series of computations based on an 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.

11. Which form of receivables financing is equivalent to an absolute sale of

accounts receivable?
A. Pledge of accounts receivable.
B. Assignment of accounts receivable.
C. Factoring.
D. Discounting of notes receivable.

12. Which of the following is not required disclosure for loans and
receivables?
A. The names of the debtors who defaulted on the payment of their loans
or accounts.
B. The criteria for recognition and basis of measurement applied.
C. Material items of income and expense and gains and losses resulting
from receivables.
D. The nature and amount of impairment loss recognized in profit or loss.

13. 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. Sales revenue is increased by a recovery of an account previously
written off.
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. It is appropriate to measure the impairment on receivable based on
recognized sales or other revenues.

14. Which of the following shall be taken into consideration when measuring
and recognizing impairment loss on receivables?
I. Past experience on the collectability of the receivables.
II. Present condition of the debtor, including the present economic
environment.
III. Future expectations based on information that are available without
undue cost and effort.

A. I only.
B. II only.
C. I and II
D. I, II and III
15. The account credited when a note receivable is discounted with recourse
is
A. Liability on discounted notes.
B. Notes receivable.
C. Accounts receivable.
D. Allowance for discounted notes.

16. A company writes off as uncollectible on account receivable from a

bankrupt customer. The company has an adequate amount in its
Allowance for Bad Debts. This transaction will
A. Decrease profit for the period.
B. Decrease total current assets.
C. Decrease the amount of owner’s equity.
D. Have no effect on total current assets.

17. A 60-day, 6% interest-bearing note receivable was immediately

discounted at a bank at 8%. The proceeds received from the bank upon
discounting would be the
A. Maturity value less the discount at 8%.
B. Maturity value less the discount at 6%.
C. Maturity value plus the discount at 8%.
D. Face value less the discount at 8%.

18. A 120-day, 6% interest-bearing note receivable is discounted to a bank at

8% after being held for 45 days. The proceeds received from the bank
upon discounting would be the
A. Maturity value less the discount at 8% for 120 days.
B. Maturity value less the discount at 8% for 45 days.
C. Maturity value less the discount at 8% for 75 days.
D. Maturity value less the discount at 6% for 75 days.