LA SALLE UNIVERSITY

COLLEGE OF BUSINESS AND ACCOUNTANCY

Second Semester of A.Y. 2019-2020
INTEGRATED ENHANCEMENT COURSE FOR ACCOUNTANCY
FAR: Financial Accounting and Reporting by Lowelle C. Pacot, CPA, MMA
MULTIPLE CHOICE

I. ACCOUNTS RECEIVABLE a. most short-term receivables are not interest-

1. The category "trade receivables" includes bearing.
a. advances to officers and employees. b. the allowance for uncollectible accounts includes a
b. income tax refunds receivable. discount element.
c. claims against insurance companies for casualties c. the amount of the discount is not material.
sustained. d. most receivables can be sold to a bank or factor.
d. none of these.

2. Which of the following should be recorded in Accounts 8. Which of the following methods of determining bad
Receivable? debt expense does not properly match expense and
a. Receivables from officers revenue?
b. Receivables from subsidiaries a. Charging bad debts with a percentage of sales
c. Dividends receivable under the allowance method.
d. None of these b. Charging bad debts with an amount derived from
a percentage of accounts receivable under the
3. What is the preferable presentation of accounts allowance method.
receivable from officers, employees, or affiliated c. Charging bad debts with an amount derived from
companies on a balance sheet? aging accounts receivable under the allowance
a. As offsets to capital. method.
b. By means of footnotes only. d. Charging bad debts as accounts are written off as
c. As assets but separately from other receivables. uncollectible.
d. As trade notes and accounts receivable if they
otherwise qualify as current assets. 9. Which of the following methods of determining annual
bad debt expense best achieves the matching concept?
4. When a customer purchases merchandise inventory a. Percentage of sales
from a business organization, she may be given a b. Percentage of ending accounts receivable
discount which is designed to induce prompt payment. c. Percentage of average accounts receivable
Such a discount is called a(n) d. Percentage of average accounts receivable
a. trade discount.
b. nominal discount. 10. Which of the following is a generally accepted method
c. enhancement discount. of determining the amount of the adjustment to bad
d. cash discount. debt expense?
a. A percentage of sales adjusted for the balance in
5. Trade discounts are the allowance
a. not recorded in the accounts; rather they are a b. A percentage of sales not adjusted for the balance
means of computing a price. in the allowance
b. used to avoid frequent changes in catalogues. c. A percentage of accounts receivable not adjusted
c. used to quote different prices for different for the balance in the allowance
quantities purchased. d. An amount derived from aging accounts receivable
d. all of the above. and not adjusted for the balance in the allowance

6. If a company employs the gross method of recording 11. The advantage of relating a company's bad debt
accounts receivable from customers, then sales expense to its outstanding accounts receivable is that
discounts taken should be reported as this approach
a. a deduction from sales in the income statement. a. gives a reasonably correct statement of
b. an item of "other expense" in the income receivables in the balance sheet.
statement. b. best relates bad debt expense to the period of sale.
c. a deduction from accounts receivable in c. is the only generally accepted method for valuing
determining the net realizable value of accounts accounts receivable.
receivable. d. makes estimates of uncollectible accounts
d. sales discounts forfeited in the cost of goods sold unnecessary.
section of the income statement.
12. Which of the following statements is incorrect
7. Assuming that the ideal measure of short-term regarding the classification of accounts and notes
receivables in the balance sheet is the discounted receivable?
value of the cash to be received in the future, failure to a. Segregation of the different types of receivables is
follow this practice usually does not make the balance required if they are material.
sheet misleading because

FAR 4.2: LOANS AND RECEIVABLES

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 b. Disclose any loss contingencies that exist on the Allowance for doubtful 760
receivables. accounts
c. Any discount or premium resulting from the
determination of present value in notes receivable 17. If the estimate of uncollectibles is made by taking 2%
transactions is an asset or liability respectively. of net sales, the amount of the adjustment is
d. Valuation accounts should be appropriately offset a. ₱6,700. c. ₱8,220.
against the proper receivable accounts. b. ₱8,500. d. ₱9,740.

13. At the close of its first year of operations, December 18. If the estimate of uncollectibles is made by taking 10%
31, 2017, Linn Company had accounts receivable of of gross account receivables, the amount of the
₱540,000, after deducting the related allowance for adjustment is
doubtful accounts. During 2017, the company had a. ₱3,540. c. ₱4,300.
charges to bad debt expense of ₱90,000 and wrote off, b. ₱4,224. d. ₱5,060.
as uncollectible, accounts receivable of ₱40,000. What
should the company report on its balance sheet at 19. Simpson Company has the following account balances
December 31, 2017, as accounts receivable before the at year-end:
allowance for doubtful accounts? Accounts receivable ₱60,00
a. ₱670,000 c. ₱590,000 0
b. ₱490,000 d. ₱440,000 Allowance for doubtful 3,600
accounts
Sales discounts 2,400
14. Before year-end adjusting entries, Bass Company's
account balances at December 31, 2017, for accounts
Simpson should report accounts receivable at a net
receivable and the related allowance for uncollectible
amount of
accounts were ₱600,000 and ₱45,000, respectively. An
a. ₱54,000. c. ₱56,400.
aging of accounts receivable indicated that ₱62,500 of
b. ₱57,600. d. ₱60,000.
the December 31 receivables are expected to be
uncollectible. The net realizable value of accounts
20. Holtzman Corporation had a 1/1/2017 balance in the
receivable after adjustment is
Allowance for Doubtful Accounts of ₱10,000. During
a. ₱582,500. c. ₱537,500.
2017, it wrote off ₱7,200 of accounts and collected
b. ₱492,500. d. ₱555,000.
₱2,100 on accounts previously written off. The
balance in Accounts Receivable was ₱200,000 at 1/1
15. During the year, Jantz Company made an entry to write
and ₱240,000 at 12/31. At 12/31/2017, Holtzman
off a ₱4,000 uncollectible account. Before this entry
estimates that 5% of accounts receivable will prove to
was made, the balance in accounts receivable was
be uncollectible. What is Bad Debt Expense for 2017?
₱50,000 and the balance in the allowance account was
a. ₱2,000. c. ₱7,100.
₱4,500. The net realizable value of accounts receivable
b. ₱9,200. d. ₱12,000.
after the write-off entry was
a. ₱50,000. c. ₱49,500.
21. Rusch Corporation had a 1/1/17 balance in the
b. ₱41,500. d. ₱45,500.
Allowance for Doubtful Accounts of ₱12,000. During
2017, it wrote off ₱8,640 of accounts and collected
16. The following information is available for Reagan
₱2,520 on accounts previously written off. The
Company:
balance in Accounts Receivable was ₱240,000 at 1/1
and ₱288,000 at 12/31. At 12/31/17, Rusch estimates
Allowance for doubtful accounts at
that 5% of accounts receivable will prove to be
December 31, 2016 ₱8,000
uncollectible. What should Rusch report as its
Credit sales during 2017 400,000
Accounts receivable deemed worthless Allowance for Doubtful Accounts at 12/31/17?
and written off during 2017 9,000 a. ₱5,760. c. ₱5,880.
b. ₱8,280. d. ₱14,400.
As a result of a review and aging of accounts receivable
in early January 2018, however, it has been 22. Sandler Company has the following account balances
determined that an allowance for doubtful accounts of at year-end:
₱5,500 is needed at December 31, 2017. What amount Accounts receivable ₱80,00
should Reagan record as "bad debt expense" for the 0
year ended December 31, 2017? Allowance for doubtful 4,800
a. ₱4,500 c. ₱5,500 accounts
b. ₱6,500 d. ₱13,500 Sales discounts 3,200

Sandler should report accounts receivable at a net

A trial balance before adjustments included the
amount of
following:
a. ₱72,000. c. ₱75,200.
Debit Credit
Sales ₱425,00 b. ₱76,800. d. ₱80,000.
0
Sales returns and allowance ₱14,00 23. Delgado Corporation had a 1/1/17 balance in the
0 Allowance for Doubtful Accounts of ₱20,000. During
Accounts receivable 43,000 2017, it wrote off ₱14,400 of accounts and collected

FAR 4.2: LOANS AND RECEIVABLES

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 ₱4,200 on accounts previously written off. The
balance in Accounts Receivable was ₱400,000 at 1/1 30. Which of the following rates may be used to compute
and ₱480,000 at 12/31. At 12/31/17, Delgado for the interest receivable on a note receivable?
estimates that 5% of accounts receivable will prove to a. Imputed rate of interest
be uncollectible. What is Bad Debt Expense for 2017? b. Current rate
a. ₱4,000. c. ₱14,200. c. Yield rate
b. ₱18,400. d. ₱24,000. d. Nominal rate

24. Burnett Corporation had a 1/1/17 balance in the 31. A noninterest-bearing note
Allowance for Doubtful Accounts of ₱15,000. During a. Bears no effective interest rate
2017, it wrote off ₱10,800 of accounts and collected b. Has a specified principal but an unspecified
₱3,150 on accounts previously written off. The interest rate
balance in Accounts Receivable was ₱300,000 at 1/1 c. Does not result to any interest income
and ₱360,000 at 12/31. At 12/31/17, Burnett d. Has an unspecified principal and an unspecified
estimates that 5% of accounts receivable will prove to interest
be uncollectible. What should Burnett report as its
Allowance for Doubtful Accounts at 12/31/17? 32. The imputed interest rate of interest is
a. ₱7,200. c. ₱7,350. a. The prevailing rate for a similar instrument of an
b. ₱10,350. d. ₱18,000. issuer with a similar credit rating
b. A rate of interest that discounts the face (nominal)
II. NOTES RECEIVABLE amount of the receivable to the current cash sales
25. According to the PFRSs, receivables except trade price of the goods or services
receivables, are initially recognized at c. The more clearly determinable of either (a) or (b)
a. Fair value d. None of these
b. Cost
c. Present value 33. The concept of time value of money
d. Fair value plus direct transaction costs a. Is irrelevant in financial reporting
b. States that the money loses its value over time
26. Mythical Imaginary Co. makes all of its sales on 30-day because of inflation
credit terms. During the period, Mythical made a c. Provides that contractual agreements to receive
special sale to one of its customers, wherein the cash or to pay cash in the future will earn or incur
customer was extended a 9-month credit term. interests due to passage of time regardless of
Mythical received a ₱10M noninterest-bearing note on whether interests have been agreed upon or not
the sale. According to the PFRSs, Mythical should d. Is a pervasive concept which affects only financial
initially recognize the receivable at (ignore practical reporting but not managerial accounting
expedient of PFRS 15)
a. Face amount 34. When a note receivable earns compounded interest,
b. Present value a. The principal is due at maturity but interests are
c. Appraised value due periodically
d. Fair value less costs to sell b. It means that the note is a long-term asset
c. Both the principal and interest are due only at
27. Short-term receivables including non-trade maturity date
receivables that are currently collectible may not be d. Interest income on the note is computed using a
discounted to the present values because very complex formula
a. Their face value are normally immaterial
b. They are so near their maturity dates that their 35. When the contractual cash flows on a debt instrument
values do not change that is measured at amortized cost are due in lump
c. Present value computation is very complex sum, the present value (PV) factor used to discount the
d. The effect of discounting may be immaterial future cash flows is
a. PV of ₱1
28. Svelte Slender Co. receive a 3-year, 3%, note receivable b. PV of ordinary annuity of ₱1
from one of its customers. The current rate of the date c. PV of an annuity due of ₱1
of receipt of the note was 12%. Svelte should initially d. PV of a deferred annuity
recognize the receivable at
a. Face amount 36. When the contractual cash flows on a debt instrument
b. Present value is measured at amortized cost are due in installments
c. Appraised value and the first installments is due a period from the date
d. Fair value less costs to sell of the instrument, the present value (PV) factor used
to discount the future cash flows is
29. Which of the following rates may be used to compute a. PV of ₱1
for the interest income on a receivable? b. PV of ordinary annuity of ₱1
a. Imputed rate of interest c. PV of annuity due of ₱1
b. Current rate d. PV of deferred annuity
c. Effective interest rate
d. Nominal rate

FAR 4.2: LOANS AND RECEIVABLES

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 37. When the contractual cash flows on a debt instrument December 31, 2017 rounded to the nearest dollar?
that is measured at amortized cost are due in (The present value of an ordinary annuity of 1 at 9%
installments and the first installment is due at the date for 2 years is 1.75911.)
of the instrument, the present value (PV) factor used a. ₱52,773. c. ₱67,773.
to discount the future cash flows is b. ₱60,000. d. ₱105,546.
a. PV of ₱1
b. PV of ordinary annuity of ₱1 43. On January 1, 2017, Melanie Co. sold a building, which
c. PV of an annuity due of ₱1 had a carrying amount of ₱350,000, receiving a
d. PV of a deferred annuity ₱125,000 down payment and, as additional
consideration, a ₱400,000 noninterest bearing note
38. Total interest income recognized over the life of a due on January 1, 2020. There was no established
noninterest-bearing note is exchange price for the building, and the note had no
a. Zero ready market. The prevailing rate of interest for a note
b. Greater than the total interest received on the note of this type at January 1, 2017, was 10%. The present
c. Less than the total interest received on the note value of 1 at 10% for three periods is 0.75. What
d. Equal to the unearned interest income on initial amount of interest should be included in Melanie’s
recognition 2017 income statement?
a. ₱0 c. ₱30,000
39. The present value of the debt instrument is computed b. ₱35,000 d. ₱40,000
by
a. Multiplying the future cash flows from the note by 44. On January 1, 2017, Kristelle Co. sold goods to Jane Co.
an appropriate present value factor Jane signed a noninterest-bearing note requiring
b. Adding the future cash flows payment of ₱60,000 annually for seven years. The first
c. Adding the future cash flows from the principal to payment was made on January 1, 2017. The prevailing
the sum of the periodic interest receivable rate of interest rate of interest for this type of note at
d. Dividing the future cash flows from the note by an date of issuance was 10%. Kristelle should record the
appropriate present value factor sales revenue in January 2017 of
a. ₱321,600 c. ₱292,200
40. At the beginning of 2016, Finney Company received a b. ₱261,600 d. ₱214,200
three-year zero-interest-bearing ₱1,000 trade note.
The market rate for equivalent notes was 8% at that Use the following information to answer the next two
time. Finney reported this note as a ₱1,000 trade note questions:
receivable on its 2016 year-end statement of financial On January 2, 2017, Zyrus Co. sold equipment with a
position and ₱1,000 as sales revenue for 2016. What carrying amount of ₱480,000 in exchange for a
effect did this accounting for the note have on Finney's ₱600,000 noninterest bearing note due January 2,
net earnings for 2016, 2017, 2018, and its retained 2020. There was no established exchange price for this
earnings at the end of 2018, respectively? equipment. The prevailing rate of interest for a note of
a. Overstate, overstate, understate, zero this type at January 2, 2017, was 10%.
b. Overstate, understate, understate, understate
c. Overstate, overstate, overstate, overstate 45. In Zyrus’ 2017 income statement, what amount should
d. Overstate, understate, understate, zero be reported as interest income?
a. ₱9,000 c. ₱45,000
41. Marley Company received a seven-year zero-interest- b. ₱50,000 d. ₱60,000
bearing note on February 22, 2017, in exchange for
property it sold to O’Rear Company. There was no 46. In Zyrus’ 2017 income statement, what amount should
established exchange price for this property and the be reported as gain (loss) on sale of machinery?
note has no ready market. The prevailing rate of a. ₱(30,000) loss c. ₱30,000 gain
interest for a note of this type was 7% on February 22, b. ₱120,000 gain d. ₱270,000 gain
2017, 7.5% on December 31, 2007, 7.7% on February
22, 2018, and 8% on December 31, 2018. What 47. On December 31, 2017, Jet Co. received two ₱10,000
interest rate should be used to calculate the interest notes receivable from customers in exchange for
revenue from this transaction for the years ended services rendered. On both notes, interest is calculated
December 31, 2017 and 2018, respectively? on the outstanding principal balance at the annual rate
a. 0% and 0% c. 7% and 7% of 3% and payable at maturity. The note from Hart
b. 7% and 7.7% d. 7.5% and 8% Corp., made under customary trade terms, is
due0020in nine months and the note from Maxx, Inc.
42. On December 31, 2017, Eller Corporation sold for is due in five years. The market interest rate for similar
₱75,000 an old machine having an original cost of notes on December 31, 2017, was 8%. The compound
₱135,000 and a book value of ₱60,000. The terms of interest factors to convert future values into present
the sale were as follows: ₱15,000 down payment; values at 8% follow:
₱30,000 payable on December 31 each of the next two Present value of ₱1 due in nine 0.944
years. The agreement of sale made no mention of months
interest; however, 9% would be a fair rate for this type Present value of ₱1 due in five 0.680
of transaction. What should be the amount of the notes years
receivable net of the unamortized discount on

FAR 4.2: LOANS AND RECEIVABLES

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 At what amounts should these two notes receivable be 53. What are the effects of direct loan origination costs
reported in Jet’s December 31, 2017, balance sheet? and origination fees to the carrying amount of a loan
a. Hart, ₱9,440; Maxx, ₱6,800 receivable?
b. Hart, ₱9,652; Maxx, ₱7,820 Direct origination costs Origination fees
c. Hart, ₱10,000; Maxx, ₱6,800 a. Deducted Added
d. Hart, ₱10,000; Maxx, ₱7,820 b. Added Deducted
c. Added No effect
48. Frame Co. has an 8% note receivable dated June 30, d. Deducted No effect
2017, in the original amount of ₱150,000. Payments of
₱50,000 in principal plus accrued interest are due 54. A receivable is impaired if
annually on July 1, 2018, 2019, and 2020. In its June a. Its carrying amount exceeds its recoverable
30, 2017, balance sheet, what amount should Frame amount
report as a current asset for interest on the note b. Its recoverable amount exceeds its carrying
receivable? amount
a. ₱0 c. ₱4,000 c. There is a delay in the periodic payments on the
b. ₱8,000 d. ₱12,000 receivable
d. Its fair value is less than its carrying amount
49. On June 1, 2017, Yola Corp. loaned Dale ₱500,000 on a
12% note, payable in five annual installments of 55. The carrying amount of a loan or note receivable
₱100,000 beginning January 2, 2018. In connection before impairment
with this loan, Dale was required to deposit ₱5,000 in a. Is equal to the unpaid principal
a noninterest-bearing escrow account. The amount b. Is equal to the unpaid principal plus any
held in escrow is to be returned to Dale after all unrecorded accrued interest receivable
principal and interest payments have been made. c. Excludes any accrued interest receivable
Interest on the note is payable on the first day of each d. Less than the present value of the note receivable
month beginning July 1, 2017. Dale made timely
payments through November 1, 2017. On January 2, 56. The recoverable amount of a loan or note receivable is
2018, Yola received payment of the first principal a. The present value of the estimated future cash
installment plus all interest due. At December 31, flows to be received over the remaining life of the
2017, Yola’s interest receivable on the loan to Dale receivable discounted at the current interest rate.
should be b. The present value of the estimated future cash
a. ₱0 c. ₱5,000 flows to be received over the remaining life of the
b. ₱10,000 d. ₱15,000 receivable discounted at the original effective
interest rate.
50. Leaf Co. purchased from Oak Co. a ₱20,000, 8%, 5-year c. The present value of the estimated future cash
note that required five equal annual year-end flows to be received over the remaining life of the
payments of ₱5,009. The note was discounted to yield receivable discounted at the original effective
9% rate to Leaf. At the date of purchase, Leaf recorded interest rate or the current market rate, whichever
the note at its present value of ₱19,485. What should is more clearly determinable.
be the total interest revenue earned by Leaf over the d. The sum of principal plus interests.
life of this note?
a. ₱5,045 c. ₱5,560 57. Impairment loss on an impaired receivable may be
b. ₱8,000 d. ₱9,000 computed as
a. The excess of the present value of the remaining
51. On December 30, 2017, Chang Co. sold a machine to future cash flows from the receivable over its
Door Co. in exchange for a noninterest-bearing note carrying amount
requiring ten annual payments of ₱10,000. Door made b. The excess of its carrying amount over the present
the first payment on December 30, 2017. The market value of the remaining future cash flows from the
interest rate of similar notes at date of issuance was receivable
8%. In its December 31, 2017, balance sheet, what c. The deficiency of the carrying amount compared
amount should Chang report as note receivable? to the present value of the remaining future cash
a. ₱45,000 c. ₱46,000 flows from the receivable
b. ₱62,500 d. ₱67,100 d. The difference between the remaining future cash
flows and the carrying amount of the receivable
52. Devin Co. sold to Andre Co. a ₱20,000, 8%, 5-year note
that required five equal annual year-end payments. 58. After impairment, interest income is
This note was discounted to yield a 9% rate to Andre. a. Computed by multiplying the original effective
What should be the total interest revenue earned by interest rate by the present value of the impaired
Andre on this note? receivable
a. ₱9,000 c. ₱8,000 b. Computed by multiplying the current interest rate
b. ₱5,560 d. ₱5,050 by the present value of the impaired receivable.
c. Computed by multiplying the more clearly
III. LOANS RECEIVABLE determinable between the original effective
interest rate and the current interest rate by the
present value of the impaired receivable

FAR 4.2: LOANS AND RECEIVABLES

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 d. Not computed anymore a. ₱144,000 c. ₱148,000
b. ₱150,000 d. ₱152,000
59. Gain on reversal of impairment loss on a loan
receivable is 64. Duff, the borrower, has a carrying amount of
a. Recognized in other comprehensive income a. ₱144,000 c. ₱148,000
b. Computed as the difference between the present b. ₱150,000 d. ₱152,000
value of the remaining future cash flows
discounted at the current rate and the current IV. RECEIVABLE FINANCING
carrying amount of the receivable 65. Financial assets are derecognized when
c. Computed as the difference between the carrying a. The entity becomes a party to the contractual
amount of the receivable had there been no provisions of the instrument
previous impairment and the current carrying b. The contractual rights to the cash flows from the
amount of the receivable financial asset expire
d. Never recognized c. The financial assets are transferred and the
transfer qualifies for derecognition
60. The gain on reversal of impairment d. b or c
a. Should result to carrying amount of financial asset
in excess of its carrying amount assuming no 66. This transfer of financial asset does not result to
impairment loss had been recognized previously. derecognition.
b. Should result to carrying amount of financial asset a. The transferred asset has been isolated from the
in excess of its new recoverable amount. transferor (put beyond reach of the transferor and
c. Is amortized over the remaining term of the its creditors).
receivable. b. The transferees have obtained the right to pledge
d. Is never recognized in other comprehensive or exchange either the transferred assets or
income. beneficial interests in the transferred assets.
c. The transferor is obliged to repurchase the
61. On December 1, 2017, Tigg Mortgage Co. gave Pod transferred financial asset.
Corp. a ₱200,000, 12% loan. Pod received proceeds of d. The transferor does not maintain effective control
₱194,000 after the deduction of a ₱6,000 over the transferred assets through an agreement
nonrefundable loan origination fee. Principal and to repurchase or redeem them before their
interest are due in sixty monthly installments of maturity.
₱4,450, beginning January 1, 2018. The repayments
yield an effective interest rate of 12% at a present 67. Transfers of receivables may either be treated as sale
value of ₱200,000 and 13.4% at a present value of or secured borrowing. Which of the following transfers
₱194,000. What amount of accrued interest receivable of receivables is treated as a secured borrowing?
should Tigg include in its December 31, 2017 balance a. A receivable is factored under a “non-recourse”
sheet? basis
a. ₱4,450 c. ₱2,166 b. A receivable is discounted with a bank under a
b. ₱2,000 d. ₱0 “non-recourse” basis
c. A receivable is discounted with a bank and the
62. On December 1, 2017, Money Co. gave Home Corp. a “note receivable – discounted” account was
₱200,000, 11% loan. Money paid proceeds of credited
₱194,000 after the deduction of a ₱6,000 d. A receivable is discounted with a bank and the
nonrefundable loan origination fee. Principal and “loan payable” account was credited.
interest are due in sixty monthly installments of
₱4,310, beginning January 1, 2018. The repayments 68. Pledge transactions
yield an effective interest rate of 11% at a present a. Are disclosed only
value of ₱200,000 and 12.4% at a present value of b. Are accounted for by segregating the pledged
₱194,000. What amount of income from this loan receivables from the other receivables through a
should Money report in its 2017 income statement? journal entry
a. ₱0 c. ₱1,833 c. Need not be disclosed if the related loan does not
b. ₱2,005 d. ₱7,833 require any collateral security
d. a and b
Use the following information to answer the next two
questions: 69. If the accounts receivable are said to be hypothecated,
Duff, Inc. borrowed from Martin Bank under a ten-year such receivables are
loan in the amount of ₱150,000 with a stated interest a. Pledged c. Assigned
rate of 6%. Payments are due monthly, and are b. Factored d. Discounted
computed to be ₱1,665. Martin Bank incurs ₱4,000 of
direct loan origination costs and ₱2,000 of indirect 70. Assignments of receivables
loan origination costs. In addition, Martin Bank a. Are disclosed only
charges Duff, Inc. a four-point nonrefundable loan b. Are recognized by debiting “Accounts receivable –
origination fee. assigned”
c. Give rise to receivables from factor
63. Martin Bank, the lender, has a carrying amount of d. b and d

FAR 4.2: LOANS AND RECEIVABLES

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 c. The factor assumes the risk of collectibility and
71. When specific accounts receivables are set up as absorbs any credit losses in collecting the
collateral security for borrowings, the accounts receivables.
receivables are d. The financing cost (interest expense) should be
a. Pledged c. Assigned recognized ratably over the collection period of
b. Factored d. Discounted the receivables.

Use the following information to answer the next two 78. Of the following conditions, which is the only one that
questions: is not required if the transfer of receivables with
Henry Co. assigned ₱400,000 of accounts receivable to recourse is to be accounted for as a sale?
Easy Finance Co. as security for a loan of ₱335,000. a. The transferor is obligated to make a genuine
Easy charged a 2% commission on the amount of the effort to identify those receivables that are
loan; the interest rate on the note was 10%. During the uncollectible.
first month, Henry collected ₱110,000 on assigned b. The transferor surrenders control of the future
accounts after deducting ₱380 of discounts. Henry economic benefits of the receivables.
accepted returns worth ₱1,350 and wrote off assigned c. The transferee cannot require the transferor to
accounts totaling ₱2,980. repurchase the receivables.
d. The transferor's obligation under the recourse
72. The amount of cash Henry received from Easy at the provisions can be reasonably estimated.
time of the transfer was
a. ₱301,500. c. ₱327,000. 79. On February 1, 2017, Norton Company factored
b. ₱328,300. d. ₱335,000. receivables with a carrying amount of ₱300,000 to
Koch Company. Koch Company assesses a finance
73. Entries during the first month would include a charge of 3% of the receivables and retains 5% of the
a. debit to Cash of ₱110,380. receivables. Relative to this transaction, you are to
b. debit to Bad Debt Expense of ₱2,980. determine the amount of loss on sale to be reported in
c. debit to Allowance for Doubtful Accounts of the income statement of Norton Company for
₱2,980. February. Assume that Norton factors the receivables
d. debit to Accounts Receivable of ₱114,710. on a without recourse basis. The loss to be reported is
a. ₱0. c. ₱9,000.
74. It involves the outright sale of receivables to a b. ₱15,000. d. ₱24,000.
financing institution known as a factor.
a. Pledging c. Assignment 80. Assume that Norton factors the receivables on a with
b. Factoring d. Selling recourse basis. The recourse obligation has a fair value
of ₱1,500. The loss to be reported is
75. Factoring made on a without recourse basis a. ₱9,000. c. ₱10,500.
a. Is prohibited b. ₱15,000. d. ₱25,500.
b. Is an outright sale
c. Results to recognition of a recourse obligation 81. Joe Novak Corporation factored, with recourse,
d. Requires an equity disclosure ₱100,000 of accounts receivable with Huskie
Financing. The finance charge is 3%, and 5% was
76. Which of the following is true when accounts retained to cover sales discounts, sales returns, and
receivable are factored without recourse? sales allowances. Joe Novak estimates the recourse
a. The transaction may be accounted for either as a obligation at ₱2,400. What amount should Joe Novak
secured borrowing or as a sale, depending upon report as a loss on sale of receivables?
the substance of the transaction. a. ₱ -0-. c. ₱3,000.
b. The receivables are used as collateral for a b. ₱5,400. d. ₱10,400.
promissory note issued to the factor by the owner
of the receivables. 82. Mortonson Corporation factored, with recourse,
c. The factor assumes the risk of collectibility and ₱300,000 of accounts receivable with Huskie
absorbs any credit losses in collecting the Financing. The finance charge is 3%, and 5% was
receivables. retained to cover sales discounts, sales returns, and
d. The financing cost (interest expense) should be sales allowances. Mortonson estimates the recourse
recognized ratably over the collection period of obligation at ₱7,200. What amount should Mortonson
the receivables. report as a loss on sale of receivables?
a. ₱ -0-. c. ₱9,000.
77. Which of the following is true when accounts b. ₱16,200. d. ₱31,200.
receivable are factored without recourse?
a. The transaction may be accounted for either as a 83. When an entity discounts a note receivable received
secured borrowing or as a sale, depending upon from a customer, the net proceeds from the note
the substance of the transaction. discounting is computed
b. The receivables are used as collateral for a a. By multiplying the maturity value by the discount
promissory note issued to the factor by the owner rate and by the discount period
of the receivables.

FAR 4.2: LOANS AND RECEIVABLES

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 b. As the difference between the sum of accrued c. Debit cash equal to the face amount of the note
interest income and face amount of the note d. Crediting note receivable equal to the face amount
discounted and the cash received of the note
c. Multiplying the face amount of the note by the
interest rate and the expired term of the note 85. On November 1, 2017, Davis Co. discounted with
d. As the difference between the maturity value of recourse at 10% a one-year, noninterest bearing,
the note and the discount ₱20,500 note receivable maturing on January 31,
2018. What amount of contingent liability for this note
84. The entry to record a note receivable discounted with must Davis disclose to its financial statements for the
a bank most likely includes year ended December 31, 2017?
a. Debiting cash equal to the maturity value of the a. ₱0 c. ₱20,000
note b. ₱20,333 d. ₱20,500
b. Crediting note receivable equal to the maturity
value of the note

SUGGESTED ANSWERS:
1-10 DDCDD ACDAB
11-20 ACCCD BCACC
21-30 DCCDD BDBCD
31-40 DCCCA BCDAD
41-50 CACAC ADABC
51-60 BBBAB BBACD
61-70 BBCAD CDAAB
71-80 CBCBB CCACC
81-85 BBDDD

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