Ateneo de Zamboanga University
School of Management and Accountancy
Accountancy Department
Financial Accounting and Reporting 1 (Finacc1)
3rd Long Quiz
February 28, 2024
Theory: Choose the letter of the correct answer (2 points each)
1. Long-term notes receivable which nominally bear no interest or an interest which
is unreasonably low should be recognized initially at
A. Face value
B. Present value
C. Maturity value
D. Net realizable value
2. Subsequent to initial recognition, loans and receivables are measured at
A. Cost
B. Amortized cost using straight line method.
C. Amortized cost using effective interest method.
D. Fair value
3. In calculating the carrying amount of a loan receivable, the lender adds to the
principal
I. Direct loan origination cost incurred by the lender
II. Indirect loan origination cost incurred by the lender
III. Loan origination fees charged to the borrower
A. I only
B. I and II only
C. I and III only
D. I, II and III
4. The initial treatment of origination costs for loan receivables is/are:
A. Added to the carrying amount of the loan
B. Expensed immediately
C. Either A or B
D. Neither A nor B
5. The initial treatment of origination fees for loans receivable is:
A. Added to the carrying amount of the loan
B. Expensed immediately
C. Either A or B
D. Neither A nor B
6. Which of the following present value formula should be used if note receivable
will be collected in lump-sum payment?
A. Present Value of 1
B. Present Value of Ordinary Annuity
C. Present Value of Annuity Due
D. Either B or C
7. Effective interest rate is also referred to as:
A. Coupon rate
B. Stated rate
C. Market rate
D. Nominal rate
8. Which of the following statements is true about a noninterest-bearing note?
A. Interest stated on the face of the note is also the effective interest.
B. The amount of interest earned is based on the nominal interest when note was
received.
C. The amortization of discount is the amount of interest received during the
period.
D. The amount of interest earned is based on the effective interest when note was
received.
9. On July 1, 2023, an entity obtained a two-year 8% note receivable for services
rendered. At that time, the market rate of interest was 10%. The face amount of the
note and the entire amount of interest are due on June 30, 2025. Interest income on
December 31, 2023, was.
A. 5% of the face value of the note.
B. 4% of the face value of the note.
C. 5% of the July 1, 2023 present value of the amount due on June 30, 2025.
D. 4% of the July 1,2023 present value of the amount due on June 30, 2025.
10. On July 1, 2023, an entity obtained a two-year 8% note receivable for services
rendered. At that time, the market rate of interest was 10%. The face amount of the
note and the entire amount of interest are due on June 30, 2025. Interest receivable
on December 31, 2023, was.
A. 5% of the face value of the note.
B. 4% of the face value of the note.
C. 5% of the July 1, 2023 present value of the amount due on June 30, 2025.
D. 4% of the July 1,2023 present value of the amount due on June 30, 2025.
Problem Solving: Choose the letter of the correct answer. Provide your solution on
a separate sheet. (5 pts each)
FOR NUMBERS 1-2:
On December 31, 2023, Charles Company sold for P480,000 an old machine having an
original cost of P800,000 and a book value of P600,000, the terms of the sale were
as follows: P120,000 downpayment; P120,000 payable on December 31 each of the next
three years. The agreement of sale made no mention of interest; however, 9% would
be a fair rate for this type of transaction.
1. What is the amount of gain or loss from the sale of the machine?
A. P120,000
B. P176,245
C. P200,000
D. P296,245
2. What should be the amortized cost of the note receivable on December 31, 2024?
A. P110,092
B. P211,093
C. P303,755
D. P360,000
FOR NUMBERS 3-5:
On January 1, 2023, Shitzu Company sold used 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, 2023. The
prevailing market interest for this type of note at date of issuance was 12%. The
present value of ordinary annuity of 1 at 12% is 5.65 for ten periods and 5.33 for
nine periods.
3. What should be recognized as interest income for 2023?
A. 300,000 B. 319,800 C. 339,000 D. 600,000
4. What is the carrying amount of the note receivable on December 31, 2025?
A. 2,664,000
B. 2,483,680
C. 2,281,722
D. 2,055,528
5. What is the non-current portion of the note receivable on December 31, 2023?
A. 2,664,000
B. 2,483,680
C. 2,281,722
D. 2,055,528
FOR NUMBERS 6-8:
CDO Bank granted a loan to a borrower on January 1, 2023. The interest on the loan is
8% payable annually starting December 31, 2023. The loan matures in three years on
December 31, 2025.
Principal Amount 3,000,000
Origination fee 100,000
Direct Origination Cost 260,300
After considering the origination fee charged to the borrower and the direct
origination cost incurred, the effective rate on the loan is 6%
6. What is the carrying amount of the loan receivable on January 1, 2023?
A. P3,160,300 B. P3,260,300 C. P2,900,000 D. P3,000,000
7. What should be recognized as interest received for 2023?
A. P189,618 B. P252,824 C. P180,000 D. P240,000
8. What is the carrying amount of the loan receivable on December 31, 2024?
A. P3,160,300 B. P3,109,918 C. P3,056,513 D. P3,210,682
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