MODULE 2 RECEIVABLES

LEARNING OBJECTIVES:
1. Define receivables and identify the different types of receivables.
2. Explain accounting issues related to recognition of accounts receivable.
3. Explain accounting issues related to valuation of accounts receivable.
4. Explain accounting issues related to recognition of notes receivable.
5. Explain accounting issues related to valuation of notes receivable.
6. Understand special topics related to receivables.
7. Describe how to report and analyze receivables.

OVERVIEW
A receivable is money owed to a business by its clients and shown on its balance sheet as an
asset. It is one of a series of accounting transactions dealing with the billing of a customer for
goods and services that the customer has ordered. Accounts receivable is an asset which is the
result of accrual accounting. In this case, the firm has delivered products or rendered services
(hence, revenue has been recognized), but no cash has been received, as the firm is allowing
the customer to pay at a later point in time.

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Trade receivables are the total amounts owing to a company for goods or services it has sold,
which are reflected in invoices that the company has issued to its clients, but has not yet
received payments for. Trade receivables are also known as “Account Receivables”.

Accounts receivable (A/R) are assets arising from the sale of goods and/or the rendering of
services on open account in the ordinary course of business, the balance on balance sheet date
showing the amount of revenue resulting from sales on open account and not yet collected at
the end of the accounting period. An open account is an unsecured loan to a customer arising
through credit sales evidenced by a delivery note and invoice, subject to usual trade customs or
specific terms as to discount and payment period. All accounts receivable are trade
receivables.

Notes receivable (N/R) are receivables in the form of unconditional written promises
(promissory notes) to pay specified sums of money at future dates, usually with interest at a
specific rate, arising from cash advances, customers’ purchases on credit, the refinancing of
amounts coming due on accounts receivable, or when money is otherwise loaned. Only the
principal amount of a note is recorded as a note receivable; any interest owed as a result of the
note is recorded as accrued interest.

Non-trade receivables - are the amounts due from third parties for transactions outside its
primary course of business.

Examples of non-trade receivables:

1. Advances to officers and employees.
2. Advances to subsidiaries.
3. Deposits to cover potential damages or losses.
4. Deposits as a guarantee of performance or payment.
 5. Dividends and interest receivable.
6. Claims against:
a) Insurance companies for casualties sustained.
b) Defendants under suit.
c) Governmental bodies for tax refunds.
d) Common carriers for damaged or lost goods.
e) Creditors for returned, damaged, or lost goods.
f) Customers for returnable items (crates, containers, etc.).

Financial Statement Presentation

Trade and non-trade receivables that are currently collectible are combined and presented on
the statement of financial position in a single line item described as “Trade and other
receivables” and is presented as current asset.

Initial measurement
Receivables are initial recognized at fair value plus transaction cost. However, trade
receivables that do not have a significant financing component are measured at their
transaction price in accordance with PFRS 15 Revenue from contracts with customers.
Transaction price is “the amount of consideration to which an entity expects to be entitled in
exchange for transferring promised goods and services to a customer, excluding amounts
collected on behalf of third parties(e.g., some sales taxes).” (PFRS 15. Appendix A)

Subsequent measurement
Accounts receivable are subsequently measured at recoverable historical cost (or net
realizable value).

Recoverable historical cost (net realizable value) represents the amount of cash expected to be
recovered from contractual cash flows of receivable. Net realizable value is normally computed
as the transaction price minus any reduction for uncollectibility or impairment.
Estimating the recoverable historical cost of accounts receivable
When estimating recoverable historical cost (net realizable value) of trade receivable, an entity
considers the following:
a. Sales discounts – discounts available to customers, the amount of receivable
may not be wholly recoverable when it is probable that customers
will avail of the cash discount in the future.
b. Doubtful accounts – doubtful accounts expense is recognized when loss becomes
probable and can be measured reliably. There are three methods of estimating doubtful
accounts, namely: (a) percentage of net credit sales; (b) percentage of receivables; and
(c) aging of receivables.

Percentage-of-Sales Approach
 Percentage based upon past experience and anticipate credit policy.
 Achieves proper matching of costs with revenues.
 Existing balance in Allowance account not considered.

Percentage-of-Receivables Approach
 Not matching.
 Reports receivables at net realizable value.
Companies may apply this method using
 ► one composite rate, or
► an aging schedule using different rates.

Impairment Evaluation Process

Companies assess their receivables for impairment each reporting period. Possible loss events
are:
1. Significant financial problems of the customer.
2. Payment defaults.
3. Renegotiation of terms of the receivable due to financial difficulty of the
customer.
4. Decrease in estimated future cash flows from a group of receivables since initial
recognition, although the decrease cannot yet be identified with individual assets
in the group.

A receivable is considered impaired when a loss event indicates a negative impact on

the estimated future cash flows to be received from the customer. The impairment
assessment should be performed as follows.
1. Receivables that are individually significant should be considered for impairment
separately.
2. Any receivable individually assessed that is not considered impaired should be
included with a group of assets with similar credit-risk characteristics and
collectively assessed for impairment.
3. Any receivables not individually assessed should be collectively assessed for
impairment.

Notes receivable (N/R) are receivables in the form of unconditional written promises
to pay specified sums of money at future dates, usually with interest at a specific rate, arising
from cash advances, customers’ purchases on credit, the refinancing of amounts coming due on
accounts receivable, or when money is otherwise loaned.

Claims supported by a formal promissory note.

 A negotiable instrument.
 Maker signs in favor of a Payee.
 Interest-bearing (has a stated rate of interest) OR
 Zero-interest-bearing (interest included in face amount).

Generally originate from:

 Customers who need to extend payment period of an outstanding receivable.
 High-risk or new customers.
 Loans to employees and subsidiaries.
 Sales of property, plant, and equipment.
 Lending transactions (the majority of notes).

Initial measurement
Receivables are initially recognized at fair value plus transaction cost. For
measurement purposes, receivables are classified into the following:
 a. Short-term receivable
b. Long-term receivable that bears a reasonable interest rate.
c. Long-term receivable that bears no interest (non-interest bearing)
d. Long-term receivables that bears an unreasonable interest rate (below-market interest
rate).

Valuation of Notes Receivable

 Short-Term reporting parallels that for trade accounts receivable.
 Long-Term - impairment tests are often done on an individual assessment basis.
Impairment losses are measured as the difference between the carrying value of
the receivable and the present value of the estimated future cash flows
discounted at the original effective-interest rate.

Summary of initial measurement of notes receivable:

Type of receivable Initial measurement
1. Short-term receivables Fair value plus transaction cost
(trade and nontrade Fair value is equal to:
collectible within a. Face amount; or
one year b. Present value (when the transaction contains significant
financing component); or
c. Transaction price with allowed practical expedient (for
trade receivables).

2. Long term receivables Fair value plus transaction cost

bearing reasonable Fair value is equal to face amount
interest rate

3. Long term non-interest Fair value plus transaction cost

bearing receivables Fair value is equal to the present
value of future cash flows from the
receivable.

4. Long term receivable Fair value plus transaction cost

bearing unreasonable Fair value is equal to the present
interest rate (below- value of future cash flows from
market interest rate) the receivables.

 When the cash price equivalent of the non-cash asset given up in exchange for the
receivable is determinable, the fair value of the receivable is equal to the cash price
equivalent, except when the practical expedient allowed by PFRS 15 is applicable.

Subsequent Measurement
Receivable initially measured at face amount are subsequently measured at
recoverable historical cost (net realizable value).

Receivable initially measured at present value are subsequently measured at

amortized cost.

Amortized cost is the “amount at which the financial asset or financial liability is
measured at initial recognition minus principal repayments, plus or minus the cumulative
amortization using effective interest method of any difference between the initial amount
 and maturity amount and, for financial assets adjusted for any loss allowance.” (PFRS 9.
Appendix A)

Derecognition of Receivables
Company may transfer (e.g., sells) a receivables to another company for cash.
Reasons:
 Competition.
 Sell receivables because money is tight.
 Billing / collection are time-consuming and costly.

Transfer accomplished by:

1. Secured borrowing
2. Sale of receivables

Sale without Guarantee

 Purchaser assumes risk of collection.
 Transfer is outright sale of receivable.
 Seller records loss on sale.
 Seller use Due from Factor (receivable) account to cover discounts, returns, and
allowances.

Sale with Guarantee

 Seller guarantees payment to purchaser.
 Transfer is considered a borrowing—sometimes referred to as a failed sale.

Summary of transfers
Determining whether receivables that are transferred can be derecognized and accounted for as
a sale is based on an evaluation of whether the seller has transferred substantially all the risks
and rewards of ownership of the financial asset.

Presentation and analysis

General rule in classifying receivables are:
1. Segregate and report carrying amounts of different categories of receivables.
2. Indicate receivables classified as current and non-current in the statement of financial
position.
3. Appropriately offset the valuation accounts for receivables that are impaired, including a
discussion of individual and collectively determined impairments.
4. Disclose the fair value of receivables in such a way that permits it to be compared with
its carrying amount.
5. Disclose information to assess the credit risk inherent in the receivables by providing
information on:
6. Disclose any receivables pledged as collateral.
7. Disclose all significant concentrations of credit risk arising from receivables.

Analysis of Receivables

Accounts receivable turn over = Net Sales__________

Average trade receivable (net)
This Ratio used to:
 Assess the liquidity of the receivables.
 Measure the number of times, on average, a company collects receivables during the
period.

Loans Receivable
Loan receivable is similar to notes receivable in that it is also a claim supported by formal
promise to pay a certain sum of money at specific future date. Loans receivable is more
appropriately used by the financing companies.

Origination cost and fees

Lenders usually incur cost in originating loans. These cost are either direct origination cost
(transaction cost) or indirect origination cost.

The lenders recover these cost from borrowers by charging them origination fees. These fees
include compensation for activities such as evaluating the borrower’s financial condition,
evaluating and recording guarantees, collateral securities and other arrangements, negotiating
the terms, processing documents and closing the transaction.

Accounting for origination cost and fees

Direct origination cost and origination fees are included in the measurement of loans
receivables.

Direct origination cost are initially added to the carrying amount of the loans amortized over
the term of the loans.
Origination fees charged are initially deducted from the carrying amount of loans.

Indirect origination cost are not included in the measurement of receivables, and are
expense immediately.

Initial measurement of loans receivable

The initial carrying amount of loans receivable is the initial cash outlay (Principal loans + Direct
origination cost –origination fee charge), which is equal to the present value of the loans.

Subsequent measurement
Loan receivable initially measured at present value are subsequently measured at amortized
cost.

Impairment Evaluation Process

A financial asset is credit-impaired when one or more events that have a detrimental impact on
the estimated future cash flows of that financial asset have occurred.

Evidence that a financial asset is credit-impaired includes observable data about the following
events:
a) Significant financial difficulty of the issuer or obligator.
b) Breach of contract, such as a default or delinquency in interest or principal payments.
c) The lender for economic or legal reasons relating to the borrowers financial difficulty,
granting of the borrower a concession that the lender would not otherwise consider.
d) It becoming probable that the borrower will enter bankruptcy or other financial
reorganization;
e) The disappearance of an active market for that financial asset because of the financial
difficulties; or
f) The purchase or origination of a financial asset at a deep discount that reflects the
incurred credit losses.

The impairment loss is computed as the difference between:

a. The asset’s gross carrying amount, and
b. The present value of estimated cash flows discounted at the original effective interest
rate.

The carrying amount of the loan or note receivable before impairments includes any interest
receivable accrued up to the date the loss event has been determined.

The original effective interest rate is the effective interest rate on the date the receivable was
initially recognized.

Impairment loss is deducted from the carrying amount of the impaired loan or note receivable
either directly or through an allowance account.

After impairment, interest income is computed by multiplying the original effective interest rate
by the net carrying amount of the impaired receivable.
MODULE # 2 Post-test
PRACTICAL ACCOUNTING 1 – REVIEW
RECEIVABLES
PROF. U.C. VALLADOLID

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. Angel reported the “receivables” account with a debit balance of 2,000,000

The allowance for doubtful accounts had a credit balance of 60,000 on the same date
Subsidiary details revealed the following:
Trade accounts receivables 800,000
Trade notes receivable 200,000
Advances payments for purchase of merchandise 150,000
Cash advance to subsidiary 300,000
Claim from insurance company 30,000
Subscription receivables due in 60 days 150,000
Accrued interest receivables 90,000

Compute the amount to be presented as “trade and other receivables” under the current assets
a. 1,036,000 b. 1,600,000 c. 1,306,000 d. 1,360,000
2. The audit of Angel Corporation for the year ended December 31, 2023 revealed that the Accounts Receivable
account consists of the following:
Trade accounts receivable (current) 3,440,000
Past due trade accounts 640,000
Uncollectible accounts to be written off 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost
The consignee sold goods costing 96,000 for 160,000.
A 10% commission was charged by the consignee and
Remitted the balance to Angel. The cash was received in
January 2024. 320,000
Total 4,688,000

The balance of the allowance for doubtful accounts before audit adjustment is a credit of 80,000. It is estimated that
an allowance should be maintained to equal 5% of trade receivables, net of amount due from the consignee who is
bonded. The company has not provided yet for the bad debt expense.

1. Trade accounts receivable:

a. 4,080,000 b. 3,440,000 c. 4,464,000 d. 3,584,000

2. Allowance for doubtful accounts

a. 204,000 b. 216,000 c. 172,000 d. 179,200

3. Doubtful accounts expense

a. 264,000 b. 220,000 c. 252,000 d. 227,200

3. Badeth Enterprise provided the following data relating to accounts receivable for 2023:
Accounts Receivable, January 1 850,000
Credit Sales 2,500,000
Sales Return 80,000
Accounts Written off 60,000
Collections from customer 2,125,000
Allowance for sales return 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000

What amount should Badeth report as net realizable value of accounts receivable on December 31, 2023?
a. 1,350,000 b. 1,225,000 c. 1,085,000 d. 925,000
4. The financial statements of Bimbo International reported the following accounts.

Accounts Receivable – January 1, 2023 1,200,000

Allowance for Uncollectible Accounts – January 1, 2023 60,000

2023 Sales 10,000,000

Collections 8,720,000

The cash collected from customers included a 20,000 recovery from a customer whose account was written off in
prior year. On November 15, a customer settled his overdue account by issuing a 15%, 4-month note for 400,000.
During 2023, account of 100,000 were written off as worthless.

Analysis of the account receivable at December 31, 2023 revealed that 600,000 were considered past due.
Management’s estimate of probable loss on past due accounts is 20% and on current accounts at 5%.

1. Determine the adjusted balance of allowance for uncollectible accounts at December 31, 2023.
a. 50,000 b. 70,000 c. 120,000 d. 190,000

2. Determine the uncollectible accounts expense for 2023.

a. 140,000 b. 110,000 c. 230,000 d. 210,000

3. Determine the December 31, 2023 Accounts Receivable

a. 800,000 b. 1,200,000 c. 1,920,000 d. 2,000,000

4. Determine the December 31, 2023 amortized cost (NRV) of accounts receivable.
a. 1,010,000 b. 1,390,000 c. 1,810,000 d. 2,190,000

5. NR - LT (Interest bearing SR=ER)

Hacienda Santibanez sold a tract of land with a carrying amount of P3,000,000 to Hacienda Portalejo on July 1,
2022. 1,200,000 was collected on the date of sale, and the balance of P2,800,000 is collectible in four annual
installments P902,500, consisting of principal and 11% interest on the unpaid balance. The first annual installment is
due July 1, 2023.

What amount of notes receivable should be classified as current assets on December 31, 2023?
a. 594,500 b. 659,895 c. 781,198 d. 902,500

2. How much should be the interest income for the year December 31, 2023?
a. 121,303 b. 154,000 c. 275,303 d. 308,000

3. What amount of notes receivable should be classified as noncurrent assets on December 31, 2023?
a. 2,800,000 b. 1,210,500 c. 1,545,605 d. 2,205,500

6. NR: LT (Interest bearing SR<ER)

On December 31, 2023, Green Company finished consultation services and accepted in exchange a promissory note
with a face value of P600,000, a due date of December 31, 2026, and a stated rate of 5%, with interest receivable at
the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable.
Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The
following interest factors are provided:
Interest Rate
Table Factors For Three Periods 5% 10%
 Future Value of 1 1.15763 1.33100
Present Value of 1 .86384 .75132
Future Value of Ordinary Annuity of 1 3.15250 3.31000
Present Value of Ordinary Annuity of 1 2.72325 2.48685

1. What is the present value of the note on December 31, 2023?

a. 450,792 b. 530,000 c. 600,000 d. 525,398

2. What is the amount of discount on notes receivable on December 31, 2023?

a. 75,000 b. 52,062 c. 74,602 d. 81,697

3. What is the amount of discount amortized during December 31, 2025?

a. 0 b. 22,540 c. 24,794 d. 27,268

4 What is the amount of interest income during December 31, 2025?

a. 52,540 b. 54,794 c. 57,268 d. 0

7. NR: LT (non-interest bearing;lumpsum)

On January 2, 2023, PlayPoh Manufacturing sold equipment with a carrying amount of P480,000 in exchange for a
*P600,000 non-interest bearing note due January 2, 2026. There was no established exchange price for the
equipment. The prevailing rate of interest for a note of this type at January 2, 2023 was 10%.

1. How much should PlayPoh Manufacturing report as interest income in the 2023 profit or loss?
a. 45,078 b. 49,586 c. 54,544 d. 60,000

2. How much should PlayPoh report as gain or loss on sale of equipment in its 2023 profit or loss?
a. 29,220 loss b. 29,220 gain c. 120,000 gain d. 270,000 gain

3. What is the carrying value of the note receivable as of December 21, 2023 statement of financial position?
a. 450,780 b. 495,858 c. 545,444 d. 600,000

8. NR: LT (non-interest bearing: Installment)

On December 31, 2022, Lakeshore Company sold for P3,000,000 an old equipment having an original cost of
P5,400,000 and carrying amount of P2,400,000. The terms of the sale were P600, 000 down payment and P1,200,000
payable each year on December 31 of the next two years. The sale agreement made no mention of interest. However,
9% would be a fair rate for this type of transaction. The present value of an ordinary annuity of 1 at 9% for two years is
1.76.

What is the carrying amount of the note receivable on December 31, 2023?
a. 1,009,920 b. 1,102,080 c. 1,200,000 d. 2,302,080

9. Factoring - AR

Jerome Company sold P 5,750,000 in accounts receivable for cash payment of P 4,950,000. An allowance for bad
debts of P500, 000 had previously been established by the entity in relation to these accounts. To allow adjustments
and possible customer returns the factor withheld 10% of the cash proceeds.

What is the loss on factoring that should be recognized?

a. 300, 000 b. 498, 875 c. 500, 000 d. 800, 000
10. Assignment - AR
Loeb Company assigned P 4, 000, 000 of accounts receivables as collateral for a P1, 500, 000 5% loan with a bank.
The entity was also assessed by the bank for a finance charge of 6% on the transaction and is paid up front. What
amount should be recorded as a gain or loss on the transfer of accounts receivables?
a. 150, 000 gain b. 100, 000 gain c. 240, 000 loss d. 0

11. Assignment of AR-

On December 1, 2024, Winterton Company assigned specific accounts receivable totaling P3,000,000 as collateral on
a P2, 500, 000, 12% note from a certain bank. The entity will continue to collect the assigned accounts receivable. In
addition to the interest on the note, the bank also charged a 5% finance charge deducted in advance on the P2, 500,
000 value of the note. The December collections of assigned accounts receivable amounted to P1, 000, 000 less cash
discounts of P50, 000. On December 31, 2024, the entity remitted the collections to the bank in payment for the interest
accrued on December 31, 2024 and the note payable.

1. What amount of cash was received from the assignment of accounts receivable on December 1, 2024?
a. 2, 000, 000 b. 2, 150, 0000 c. 2, 375, 0000 d. 3, 100, 000

2. What is the carrying amount of note on December 31, 2024?

a. 1, 550, 000 b. 1, 575, 000 c. 1, 600, 000 d. 1, 757, 000

3. What amount should be disclosed as the equity of Winterton Company in assigned accounts on December 31, 2024?
a. 425, 000 b. 475, 000 c. 495, 000 d. 525, 000

12. Discounting of notes with recourse

On August 31, 2023, Dundas Company discounted with recourse a note at the bank at discount rate of 15%. The note
was received from the customer on August 1, 2023, is for 90 days, has a face value of 3,700,000, and carries an
interest rate of 12%. The customer paid the note to the bank on October 30, 2023, the date of maturity.

If the discounting is accounted for as a secure borrowing, what is the interest expense to be recognized on August 31,
2023?
a. 21,725 b. 12,725 c. 21,275 d. 11,725

13. Discounting NR with recourse:

On November 1,2023, Brampton Company discounted with recourse at 10% a one-year, noninterest bearing,
3,000,000 note receivable maturing on January 31, 2024. The discounting of the note receivable is accounted for as a
conditional sale with recognition of a contingent liability. What amount of contingent liability for this note must be
disclosed in the financial statements for the year ended December 31,2023?
a. 3,000,000 b. 2,000,000 c. 3,050,000 d. 2,500,000

14. Discounting NR without recourse

Kings Company accepted from a customer P 2,000,000 face amount, 6- month, 10% note dated January 15, 2024. On
the same date, the entity discounted the note without recourse at a 12% discount rate.

1. What amount of cash was received from discounting?

a. 2,000,000 b. 1,974,000 c. 126,000 d. 100,000

2. What is the loss on note receivable discounting?

a. 32,000 b. 52,000 c. 16,000 d. 26,000
15. Immediate Bank granted a loan to a borrower on January 1, 2023. The interest is 10% payable annually starting
December 31, 2023. The loan matures in four years on December 31, 2026.

Principal amount 4,000,000

Direct origination cost incurred 100,000
Indirect origination cost incurred 60,000
Origination fee charged 342,000

After considering the direct origination fee incurred and origination fee charged, the effective rate on the loan is
12%

1. What is the carrying amount of the loan receivable on January 1, 2023?

a. 4,000,000 b. 3,758,000 c. 4,253,600 d. 4,001,200

2. What is the interest income for 2023?

a. 450,960 b. 457,075 c. 480,000 d. 510,432

16. On December 31, 2023, SUNSHINE Bank has a 5-year loan receivable with a face value of 5,000,000 dated January
1, 2022 that is due on December 31, 2027. Interest on the loan is payable at 9% every December 31.

The borrower paid the interest that was due on December 31, 2022 but informed the bank that interest accrued in
2023 will be paid at maturity date. There is a high probability that the remaining interest payments will not be paid
because of financial difficulty.

The prevailing market rate of interest on December 31, 2023 is 10%. The PV of 1 for three periods is .772 at 9%, and
.751 at 10%.

What is the loan impairment loss to be recognized on December 31, 2023?

a. 1,695,000 b. 1,590,000 c. 1,242,600 d. 1,357,050
17. At the beginning of the accounting period, January 1, 2023, Mississauga Company reported the following balances:

Note receivable from an officer 1,950,000

Note receivable from a sale of building 7,125,000

The P7, 125,000 note receivable is dated April 1, 2022, bears interest at 10%. Principal payments of P2, 000, 000 plus
interest are due annually beginning April 1, 2023.

The P1, 950,000 note receivable is dated December 31, 2017, bears interest at 8% and is due on December 31, 2024.
Interest is payable annually on December 31, and all interest payments were made through December 31, 2023.

On July 1, 2023, Mississauga Company sold a parcel of land to Binay Company for P4, 000,000 under an installment
sale contract. Binay Company made a P1, 200,000 cash down payment on July 1, 2023, and signed a 4-year 10%
note for the P2,800,000 balance. The equal annual payments of principal and interest on the note totaled P878,000,
payable on July 1 of each year from 2024 through 2027.

1. What is the total amount of notes receivable including accrued interest that should be classified as current
assets on December 31, 2023?
a. 3, 117, 375 b. 2,200,000 c. 2,384,375 d. 5,072,375

2. What is the total amount of notes receivable that should be classified as noncurrent assets on December
31, 2023?
a. 7,300,000 b. 7, 150,000 c. 6,250,000 d. 5,327,000

18. Joshtin Company used the allowance method of accounting for uncollectible accounts. During 2023, the entity had
charged 750,000 to bad debt expense and wrote off accounts receivable of 780,000 as uncollectible. What was the
decrease in working capital?
a. 750,000 b. 780,000 c. 650,000 d. 0

19. Kaila World assigned 2,500,000 of accounts receivable as collateral for a 1,700,000 loan with a bank. The bank
assessed a 4% finance fee and charged 6% interest on the note at maturity. What would be the journal entry to record
the transaction?
a. Debit cash 1,632,000, debit finance charge 68,000 and credit note payable 1,700,000
b. Debit cash 2,342,000, debit finance charge 68,000 and credit note payable 2,050,000
c. Debit cash 2,500,000, debit finance charge 68,000 and credit note payable 2,500,000
d. Debit cash 2,656,000, debit finance charge 86,000 and credit note payable 2,500,000

20. Kaila Inc. sold accounts receivable without recourse for 4,275,000. The entity received 4,000,000 cash immediately
from the factor. The remaining 275,000 will be received once the factor verifies that none of the account receivable is
in dispute. The accounts receivable had a face amount of 5,200,000. The entity had previously established an
allowance for bad debts of 230,000 in connection with such accounts.

What amount of loss on factoring should be recognized?

a. 925,000 b. 295,000 c. 695,000 d. 965,000

21. Alberta Company sold an office equipment with a carrying amount of 739,000, receiving a noninterest-bearing note
due in three years with a face amount of 1,300,000. There is no established market value for the equipment. The
interest rate on similar obligations is estimated at 12%. The present value of 1 at 12% for three periods is .712. What
amount should be reported as gain or loss on the sale and interest income for the first year?
Gain (loss) Interest Income
a. 200,000. 288,000
 b. 168,600. 110,072
c. 186,600. 111,072
d. 110,072. 186,600

22. Got7 Bank granted a 10-year loan to More Company in the amount of P1,500,000 with a stated interest rate of 6%.
Payments are due monthly and are computed to be P16,650. Got7 Bank incurred P40,000 of direct loan origination
cost and P20,000 of indirect loan origination cost. In addition, Got7 Bank charged More Company a 4-point non-
refundable loan origination fee.

1. What is the initial carrying amount of the loan receivable on the part of Got7 Bank?
a. 1,520,000 b. 1,500,000 c. 1,480,000 d. 1,580,000

2. What is the initial carrying amount of the loan payable on the part of More Company?
a. 1,520,000 b. 1,500,000 c. 1,480,000 d. 1,440,000

23. Zoro Company provided the following data relating to accounts receivable for the current year:
Accounts receivable, January 1 3,000,000
Credit sales 6,000,000
Sales returns 500,000
Accounts written off 200,000
Collections from customers 1,000,000
Estimated future sales returns at December 31 75,000
Estimated uncollectible accounts at December 31 per aging 200,000

What amount should be reported as accounts receivable on December 31?

a. 10,700,000 b. 10,975,000 c. 8,000,000 d. 7,025,000

24. Dreyar Company provided the following information relating to current operations:

Accounts receivable, January 1 5,000,000

Accounts receivable collected 5,000,000
Cash sales 1,000,000
Inventory, January 1 3,000,000
Inventory, December 31 1,500,000
Purchases 4,000,000
Gross margin on sales 2,000,000

What is the balance of accounts receivable on December 31?

a. 13,500,000 b. 8,500,000 c. 9,500,000 d. 6,500,000

25. Joseph manages an extensive network of boutique hotels in the country. The entity has significant accounts receivable
from three customers, namely:

Kaila's Inn. 4,000,000

Joshtin House 7,800,000
Jerome Hotel 6,000,000
Other accounts receivable not individually significant 3,900,000
The entity has determined that the Joshtin House receivable is impaired by 2,100,000 and the Jerome Hotel receivable
is impaired by 1,900,000. The receivable from the Kaila's Inn is not impaired. The entity has also determined that a
composite rate of 5% is appropriate to measure impairment on all other accounts receivable. What is the total
impairment loss of accounts receivable
a. 5,000,000 b. 4,935,000 c. 4,395,000 d. 4,225,000