LOANS AND RECEIVABLES

ACCOUNTS RECEIVABLE

1. An entity provided the following information for the current year:

Accounts receivable – January 1 P2,000,000
Credit sales 10,000,000
Collection from customers, excluding recovery of accounts written off 8,000,000
Accounts written off as worthless 100,000
Sales return 500,000
Recovery of accounts written off 50,000
Estimated future sales returns on December 31 150,000
Estimated uncollectible accounts on December 31 per aging 300,000

What is the “amortized cost” of accounts receivable on December 31?

A. P3,400,000 B. P3,100,000 C. P2,950,000 D. P2,900,000

Use the following information for the next two (2) questions:

During the current year, an entity reported beginning allowance for doubtful accounts P200,000, sales P9,500,000, sales returns and
allowances P1,000,000, sales discounts P500,000, accounts written off P300,000 and recovery of accounts written off P50,000. It is
estimated that 5% of net sales may prove uncollectible.

2. What amount should be reported as doubtful accounts expense?

A. P400,000 B. P425,000 C. P450,000 D. P475,000

3. What is the ending allowance for doubtful accounts?

A. P350,000 B. P375,000 C. P400,000 D. P300,000

Use the following information for the next two (2) questions:

On December 31, 20x20, an entity reported accounts receivable of P6,000,000 and allowance for doubtful accounts of P1,000,000 on
January 1, 20x20.
Net credit sales Write offs Recoveries
20x17 P9,000,000 P400,000 P30,000
20x18 13,000,000 600,000 70,000
20x19 15,000,000 700,000 120,000
20x20 20,000,000 650,000 150,000

Doubtful accounts are provided for as percentage of net credit sales. The percentage is computed annually by using the data of the
three years prior to the current year.

4. What amount should be reported as doubtful accounts expense for 20x20?

A. P800,000 B. P650,000 C. P500,000 D. P600,000

5. What is the allowance for doubtful accounts on December 31, 20x20?

A. P1,300,000 B. P1,950,000 C. P1,150,000 D. P1,800,000

6. An entity provided the following accounts abstracted from the unadjusted trial balance at year-end:
Debit Credit
Accounts receivable P5,000,000
Allowance for doubtful accounts 50,000
Net credit sales 20,000,000

The entity estimated that 3% of the gross accounts receivable will become uncollectible.

What amount should be recognized as doubtful accounts expense for the current year?
A. P100,000 B. P150,000 C. P200,000 D. P600,000

Use the following information for the next four (4) questions:

From inception of operation, an entity provided for doubtful accounts under the allowance method and provisions were made
monthly at 2% of credit sales.

No year-end adjustments to the allowance account were made. The balance in the allowance for doubtful accounts was P1,000,000
on January 1, 20x20.

During 20x20, credit sales totaled P20,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P200,000
of bad debts were written off, and recoveries of accounts previously written off amounted to P50,000. An aging was made on
December 31, 20x20.

Classification Balance Uncollectible

November – December P6,000,000 10%
July – October 2,000,000 20%
January – June 1,500,000 30%
Prior to January 1, 20x20 500,000 50%

Based on the review of collectability of the account balances in the “prior to January 1, 20x20” aging category, additional accounts
totaling P100,000 are to be written off on December 31, 20x20. Effective December 31, 20x20, the entity adopted aging method for
estimating the allowance for doubtful accounts.

7. What is the required allowance for doubtful accounts on December 31, 20x20?
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 A. P1,650,000 B. P1,950,000 C. P1,700,000 D. P1,450,000

8. What amount should be reported as doubtful accounts expense for current year?
A. P1,200,000 B. P1,650,000 C. P900,000 D. P950,000

9. What is the adjustment to the allowance for doubtful accounts on December 31, 20x20?
A. P900,000 debit B. P900,000 credit C. P500,000 debit D. P500,000 credit

10. What is the net realizable value of accounts receivable on December 31, 20x20?
A. P9,900,000 B. P8,250,000 C. P8,350,000 D. P8,200,000

RECEIVABLE FINANCING

Use the following information for the next three (3) questions:

On December 1, 20x20, an entity assigned on a non-notification basis accounts receivable of P5,000,000 to a bank in consideration
for a loan of 80% of the accounts less a 5% service fee on the accounts assigned. The entity signed a note for the bank loan.

On December 31, 20x20, the entity collected assigned accounts of P2,000,000 less discount of P200,000. The entity remitted the
collections to the bank in partial payment for the loan.

The bank applied first the collection to the interest and the balance to the principal. The agreed interest is 1% per month on the
loan balance.

The entity accepted sales returns of P100,000 on the assigned accounts and wrote off assigned accounts of P300,000.

1. What is the balance of accounts receivable assigned on December 31, 20x20?

A. P3,000,000 B. P2,600,000 C. P2,400,000 D. P2,900,000

2. What is the carrying amount of the note payable on December 31, 20x20?
A. P2,240,000 B. P2,000,000 C. P4,000,000 D. P2,200,000

3. What is the equity of the assignor in assigned accounts on December 31, 20x20?
A. P2,600,000 B. P2,240,000 C. P360,000 D. P0

Use the following information for the next three (3) questions:

An entity factored P5,000,000 of accounts receivable. Control was surrendered by the entity. The transaction met the criteria to be
accounted for as sale but subject to recourse for nonpayment. The fair value of the recourse obligation is P250,000. The finance
company assessed a fee of 6% and retained a holdback equal to 10% of the accounts receivable. In addition, the finance company
charged 12% interest computed on a weighted average time to maturity of the accounts receivable for 30 days.

4. What amount was initially received from the factoring of accounts receivable?
A. P4,500,000 B. P4,200,000 C. P4,700,685 D. P4,150,685

5. What total amount should be recognized initially as loss on factoring?

A. P349,315 B. P849,315 C. P755,000 D. P599,315

6. What amount should be reported as loss on factoring assuming the accounts are fully collected by the factor?
A. P349,315 B. P300,000 C. P550,000 D. P299,315

Use the following information for the next two (2) questions:

An entity accepted from a customer in settlement of an account a P4,000,000. 90-day 12% note dated August 31, 20x20. On
September 30, 20x20, the entity discounted the note at 15% with recourse at the bank. The note was paid in fully by the maker on
maturity. The discounting is accounted for as a conditional sale with recognition of a contingent liability.

7. What amount was received from the note receivable discounting?

A. P4,017,000 B. P4,120,000 C. P4,103,000 D. P3,965,500

8. What is the loss on note receivable discounting?

A. P40,000 B. P23,000 C. P17,000 D. P20,000

Use the following information for the next four (4) questions:

On April 1, 20x20, an entity discounted with recourse a 9-month, 10% note dated January 1, 20x20 with face of P6,000,000. The
bank discount rate is 12%. The discounting transaction is accounted for as a conditional sale with recognition of contingent liability.

On October 1, 20x20, the maker dishonored the note receivable. The entity paid the bank the maturity value of the note plus
protest fee of P50,000.

On December 31, 20x20, the entity collected the dishonored note in full plus 12% annual interest on the total amount due.

9. What amount was received from the note receivable discounting?

A. P6,063,000 B. P6,450,000 C. P6,150,000 D. P5,963,000

10. What amount should be recognized as loss on note receivable discounting?

A. P450,000 B. P387,000 C. P87,000 D. P63,000

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11. What is the total amount collected from the customer on December 31, 20x20?
A. P6,450,000 B. P6,500,000 C. P6,695,000 D. P6,662,500

12. If the discounting is secured borrowing, what is included in the journal entry to record the transaction?
A. Debit interest expense P87,000
B. Credit liability for the note discounted P6,000,000
C. Credit interest income P150,000
D. All of these are included in the journal entry

NOTE RECEIVABLE AND LOAN IMPAIRMENT

Use the following information for the next three (3) questions:

On January 1, 20x20, an entity sold equipment with a carrying amount of P4,800,000 in exchange for P6,000,000 non-interest
bearing note due January 1, 20x23. There was no established exchange price for the equipment. The prevailing interest rate for
this note was 10%. The present value of 1 at 10% for three periods is 0.75.

1. What amount should be reported as gain or loss on sale of equipment in 20x20?

A. P1,200,000 gain
B. P2,700,000 gain
C. P300,000 gain
D. P300,000 loss

2. What amount should be reported as interest income for 20x20?

A. P600,000 B. P500,000 C. P450,000 D. P400,000

3. What amount should be reported as interest income for 20x21?

A. P480,000 B. P495,000 C. P528,000 D. P500,000

Use the following information for the next four (4) questions:

On January 1, 20x20, an entity sold equipment with carrying amount of P2,000,000 in exchange for a noninterest bearing note of
P5,000,000 requiring ten annual payments of P500,000. The first payment was made on December 31, 20x20. The market interest
for similar note was 12%. The present value of an ordinary annuity of 1 is 5.65 for ten periods and 5.33 for nine periods.

4. What is the carrying amount of the note receivable on January 1, 20x20?

A. P5,000,000 B. P2,825,000 C. P2,665,000 D. P4,500,000

5. What amount should be recognized as gain on sale of equipment in 20x20?

A. P3,000,000 B. P2,175,000 C. P825,000 D. P0

6. What amount should be recognized as interest income for 20x20?

A. P600,000 B. P339,000 C. P319,800 D. P261,000

7. What is the carrying amount of the note receivable on December 31, 20x20?
A. P2,664,000 B. P4,500,000 C. P3,164,000 D. P2,644,800-

Use the following information for the next four (4) questions:

Solid Bank loaned P7,500,000 to a borrower on January 1, 20x20. The terms of the loan were payment is full on January 1, 20x25
plus annual interest payment at 12%.

The interest payment was made as scheduled on January 1, 20x21. However, due to financial setbacks, the borrower was unable to
make the 20x22 interest payment.

The bank considered the loan impaired and projected the cash flows from the loan on December 31, 20x22.

The bank had accrued the interest on December 31, 20x21 but did not continue to accrue interest for 20x22 due to the impairment
of the loan.

Date of cash flows Amount projected December 31, 20x22

December 31, 20x23 P500,000
December 31, 20x24 1,000,000
December 31, 20x25 2,000,000
December 31, 20x26 4,000,000

Present value of 1 at 12%

For one period .89
For two periods .80
For three periods .71
For four periods .64

8. What is the present value of the cash flows from the loan receivable on December 31, 20x22?
A. P5,225,000 B. P7,500,000 C. P5,376,000 D. P4,800,000

9. What amount should be recognized as impairment loss for 20x22?

A. P2,275,000 B. P3,175,000 C. P5,225,000 D. P2,175,000

10. What amount should be reported by the bank as interest income for 20x23?
A. P627,000 B. P900,000 C. P567,000 D. P0

11. What is the carrying amount of the loan receivable on December 31, 20x23?
A. P5,352,000 B. P4,725,000 C. P5,225,000 D. P7,000,000

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