Aklan State University

School of Management Sciences

Banga, Aklan

Receivables

1. Which is incorrect regarding receivables?

a. Trade receivable refer to claims arising from sales of merchandise or services in the ordinary course of business
operations.
b. Accounts receivables are close accounts or those not supported by promissory notes.
c. Notes receivable are those supported by formal promises to pay in the form of notes
d. Nontrade receivables represent claims arising from sources other than the sale of merchandise or services in the
ordinary course of business.

2. Which of the following statements is incorrect regarding trade and non-trade receivables?
a. Trade receivables which are expected to be realized in cash within the normal operating cycle or one year, whichever
is longer, are classified as current assets.
b. Non-trade receivables which are expected to be realized in cash within one year, the length of the operating cycle
notwithstanding, are classified as current assets
c. Trade receivables and nontrade receivables which are currently collectible should be presented as one line item
called “trade and other receivables”
d. Trade accounts receivable and trade receivable should be presented separately.

3. Which of the following would be classified as trade receivable?

a. Cash dividends receivable
b. Claims in litigation
c. Amounts due from customers
d. Loans to employees

4. When receivables are recognized initially, an entity shall measure it at fair value plus transaction costs that are directly
attributable to the acquisition. Which is false regarding fair value measurement?
a. Fair value is usually the transaction price or original exchange price
b. For short-term receivables, fair value is equal to the face value or original invoice amount
c. For long-term receivables that are interest-bearing, fair value is equal to the present value of all future cash flow
discounted using prevailing market rate of interest for similar receivables.
d. For long-term receivables that are non-interest-bearing, fair value is equal to the present value of all future cash flow
discounted using prevailing market rate of interest for similar receivables.

5. Accounts receivable are initially measured at and subsequent valued at .

a. Face Value : Face Value
b. Face Value : Net Realizable Value
c. Face Value : Maturity Value
d. Market Value : Net Realizable Value

6. In estimating the net realizable value of trade accounts receivable, the following deduction are made. Which is the exception?
a. Allowance for freight charges
b. Allowance for sales return
c. Allowance for sales discount
d. Allowance for depreciation

7. The most fundamentally sound accounting method for cash discount on credit sales
a. Net price method
b. Discounted price method
c. Gross price method
d. Net present value method

8. When individual customers have credit balances of material amounts, these amounts
a. May be shown as`’ credit balances of customers’ accounts’’ in the current assets section.
b. May be deducted from the debit balances in other customers’ accounts in the statement current be liability of financial
position.
c. Must be reported (or disclosed) separated in the liability section of the statement of the financial position.
d. Should be omitted from the financial position.

9. When the allowance method of recognizing bad debt expense is used, the allowance for doubtful account would decrease
when.
a. Specific account receivable is collected.
b. Account previously written off is collected.
c. Account previously written becomes collectible.
d. Specific uncollectible account is written off.

10. 1When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an account
previously written off would.
a. Decrease the allowances for doubtful accounts.
b. Have no effect on the allowance for doubtful accounts.
c. Increase net income.
d. Have no effect on net income.
11. When specific customer’s amount receivable is written off as uncollectable, what will be the effect on net income under each of
the following methods of recognizing bad debt experiences?
Allowance Direct writeoff
a. None Decrease
b. Decrease None
c. Decrease Decrease
d. None None

12. If the entity uses the direct writeoff method for recognizing uncollectable accounts, the entity to record the recovery of a
specific account previously written off and its subsequent collection will.
a. Not affect current assets.
b. Decrease net income.
c. Increase the accounts receivable account balance.
d. Increase net income.

13. Which of the following methods of determining bad debt expense most closely matches expense to revenue.
a. Charging bad debits only as accounts are written off as uncollectable.
b. Estimating the allowance for double accounts as a percentage of accounts as a percentage of account receivable.
c. Charging bad debts with a percentage of sales for that period.
d. Estimating the allowances for doubtful accounts by aging the accounts receivable.

14. An advantages of rating company’s bad debts experiences to its account receivable is that this approach.
a. Is the only generally accepted method for `’valuing’’ accounts receivable.
b. Gives reasonably accurate measurement of the net realizable value of the accounts receivable in the statement
financial position.
c. Does not require estimates of uncollectible accounts.
d. Does not require knowledge of the balance in the allowance for double accounts before adjustment for bad debts
expense.

15. If a company uses a percentage of net sales in computing the amount of uncollectible account expense.
a. No valuation allowances will be required.
b. The relationship between revenue and expense being stressed more than the valuation of receivable at the reporting
date.
c. The existing balances in `’ allowance for doubtful accounts’’ will be increase sufficiently to equal the probable loss
indicated by the percentages of net sales computation.
d. Any past due accounts will be listed as a separate item in the statement of financial position.

16. Which of the following statement is correct with regards accounts receivable?
a. The net realized value of the total amount of accounts receivable is defined as the gross amount billed to customers
less any cash and trade discounts.
b. When a specified bad debt which has already been written off it is later collected sales revenue is increased by
amount of the recovery.
c. The primary accounting principle supporting use of the allowance for doubtful accounts is the cost principle.
d. An estimate of bad debts expense based upon credit sales rather than total sales will likely be more in conformity with
the matching principle.

17. Which of the following statement is incorrect regarding how the impairment assessment of accounts receivable is to be
performed?
a. Individually significant accounts receivable should be considered for impairment separately and impaired, the
impairment loss is recognized.
b. Not individually significant accounts receivable should be assessment individually and if impaired the impairment loss
is recognized.
c. Any accounts receivable individually assessed as not impaired should be included with a group of assets and
collectively assessed for impairment.
d. Any accounts receivable not individually assessed should be collectively assessed for impairment.

18. Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory?
a. Matching
b. Going concern
c. Substance over form
d. Accounting entity

19. On July 1 of the current year, an entity 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 in one year. The interest receivable account would
show a balance on.
a. July 1 but not December 31
b. July 1 and December 31
c. December 31 but not July 1
d. Neither July 1 nor December 31

20. The interest on a non- interest-bearing note is equal to

a. The excess of the face value over the present value.
b. The excess of the present value over the face value.
c. The excess of the market value over the present value of the note.
d. Zero.

21. A loan receivable is initially measurement at

 a. Fair value
b. Fair value plus transaction cost
c. Fair value minus transaction cost
d. Present value

22. Subsequent to initial recognition, loans and receivables are measured at

a. Cost
b. Fair value
c. Amortized cost using the straight line method
d. Amortized cost using the effective interest method

23. Origination fees are fees charged by the bank against the borrower for the creation of the loan. Which statement is incorrect
regarding such fees?
a. The origination fees received from borrow are recognized as unearned interest income and amortized over the life of
the loan.
b. If the origination fees are not chargeable against the borrower, they are known as direct origination cost.
c. The direct origination costs are reported as outsight expense
d. The origination fees received and the direct origination costs are included in the measurement of the loan’s
receivable.

24. Which of the following is not objective evidence of impairment of a financial asset?
a. Significant financial difficulty of the issuer or obligor.
b. A decline in the fair value of the financial asset below its previously crying amount.
c. A branch of contact, such as a default or delinquency in interest or principal payment.
d. The lender, for economic or legal reason relating to the borrow’s financial difficult, grants to the borrow a concession
that the lender would not otherwise consider.

25. If there is evidence that an impairment loss on loss and receivables has been incurred the amount of the loss is equal to the
a. Excess of the crying amount of the loan receivable over the present value of estimated future cash flows discounted
at the original effective rate of the loan.
b. Excess of the present value of estimated future cash flows discounted at the original effective rate of the loan over
the carrying amount of the loan receivable.
c. Excess of the crying amount of the loan over the principal amount of the loan.
d. Excess of the principal amount of the loan over its carrying amount.

26. If accounts receivable are pledge or hypothecated against borrowings the amount of accounts receivable pledged should be.
a. Excluded from total receivables with disclosure
b. Excluded from total receivable without disclosure
c. Included in total receivables with disclosure
d. Included in total receivables without disclosure

27. Which of the following statements is not correct regarding assignment?

a. Assignment of accounts receivable means that a borrower called the assignor transfers its in some of its accounts
receivable to a lender called the assignee in consideration for a loan.
b. Assignment is general because all accounts receivable serve as collateral security for the loan.
c. The assignor should disclose its equity in the assigned accounts’’ which is equal to the assignment accounts
receivable minus note payable to the bank.
d. Accounts receivable assigned should be included in total accounts receivable.

28. Statement 1: Factoring of accounts receivable is a sale of accounts receivable on a without recourse, notification basis.
Statement 2: Factoring differs from an assignment in that an entity actually transfers ownership of its accounts receivable to
the factor.
a. Statement 1 is correct c. Both statements are correct
b. Statement 2 is correct d. Both statements are incorrect

29. Statement 1: Accounts receivable factored should be included in the total accounts receivable.
Statements 2: Factor’s holdback (due from factor) is the predetermined amount withheld by a factor as a protection against
customer returns, allowances and other special adjustments.
a. Statement 1 is correct c. Both statements are correct
b. Statement 2 is incorrect d. Both statements are incorrect

30. When accounts receivable are factored

a. Accounts receivable should be credited
b. Payable to factor is credited
c. A contingent liability is ordinarily created
d. The transaction is accounted for as a sale of accounts receivable, with the risk of uncollectible accounts retained by
seller.

31. Which is incorrect regarding discounting of note receivable?

a. Discounting is a transfer or endorsement of a promissory note by the payee in favor of another party.
b. If a note is discounted with recourse a contingent liability does not exist.
c. If a note receivable is discounted with recourse note receivable discounted should be credited.
d. If a note receivable is discounted without recourse note receivable should be credited

32. Note receivable discounted without recourse shall be

a. Excluded from total receivable with disclosure of contingent liability.
b. Excluded from total receivable without disclosure of contingent liability.
 c. Included from total receivable with disclosure of contingent liability.
d. Included from total receivables without disclosure of contingent liability.

33. After being held for 40 days a 120-day 12% interest-bearing note receivable was discounted at a bank at 15% The proceeds
received from the bank equal.
a. Maturity value less the discount at 12%
b. Maturity value less the discount at 15%
c. Face value less the discount at 12%
d. Face value less the discount 15%

34. Discount is computed as

a. Face value times discount rate times discount period.
b. Maturity value times discount rate times discount period.
c. Face value times interest rate times discount period
d. Maturity value times discount rate times credit period.

35. If financial assets are exchanged for cash and other consideration but the transfer does not meet the criteria for sale the
transaction should be accounted for bas.
a. Secured borrowing
b. Pledge of collateral
c. Secured borrowing and pledge of collateral
d. Neither secured borrowing nor pledge of collateral.