University of San Jose-Recoletos JUNIOR PHILIPPINE PHILIPPINE INSTITUTE INSTITUTE OF ACCOUNTANTS ACCOUNTANTS Quizbowlers’ Society Tutorials Session 1: Accounts Receivable and Notes Receivable August 10, 2013
THEORY OF ACCOUNTS
1. The categ category ory “trade “trade receivab receivables” les” incl includes udes a. Advances Advances to officers officers and employees employees b. Income Income tax tax refund refunds s receiv receivabl able e c. Claims Claims against against insuranc insurance e companies companies for casualti casualties es sustained sustained d. None None of thes these e 2. Nontrade receivables are classified classified as current current assets assets only if they are reasonably expected to be realized in cash a. Within Within one year year or within within the operating operating cycle cycle whiche whichever ver is shorter shorter b. Within Within one year year or within within the operating operating cycle cycle whiche whichever ver is longer longer c. Within Within one year, year, the length length of the operati operating ng cycle, cycle, notwiths notwithstand tanding ing d. Within Within the the norma normall operat operating ing cycle cycle 3. Which if if the following is the proper balance sheet sheet presentation presentation of of receivables? a. Trade Trade receivables receivables and non-tra non-trade de receivabl receivables es which are are currently currently collectible should be presented as on line item called “trade and other receivables” b. Trade Trade accounts accounts receivabl receivables es and trade trade notes receivab receivable le should should be presented separately c. Non-trad Non-trade e receivables receivables shoul should d be presented presented as curre current nt assets assets d. Trade receivables receivables and non-trade non-trade receivables should be shown shown separately separately 4. Accounts Accounts receiv receivable able should should be be stated stated at a. Net Net real realiz izab able le Val Value ue b. Face ace valu value e c. Matu Maturi rity ty Valu Value e d. Disc Discou ount nted ed Valu Value e 5. When a specific specific customer customer’s ’s accounts accounts receivabl receivable e was written written off as uncollectible uncollectible but was subsequently recovered, what will be the effect on Accounts Receivable and Allowance for Doubtful accounts, respectively? a. No effect, effect, increase increase c. increase increase,, no effect effect b. Increase, Increase, increase increase d. some other other answer answer 6. When the direct write-off write-off method method of recognizing recognizing bad debt expense expense is used, the entry to write off a specific customer account would a. Decrea Decrease se accou accounts nts recei receivab vable le b. Decr Decrea ease se net net inc incom ome e
c. Decrease accounts receivable and decrease net income d. Increase accounts receivable and increase net income 7. Why is the allowance method preferred over the direct write-off method of accounting for bad debts? a. Determining worthless accounts under direct write-off is difficult to do b. Allowance method is used for tax purposes c. Estimates are used d. Improved matching of bad debt expense with revenue 8. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on a. Aging the trade receivable accounts b. Credit sales c. Specific accounts receivable determined to be uncollectible d. Direct write-off method 9. How should unearned interest included in the face amount of notes receivable be presented on the balance sheet? a. As a deduction from the related receivables b. As a deferred credit c. In the footnotes d. As a current liability 10.The interest of a non-interest bearing note is equal to a. Zero b. The excess of the market value over the present value of the note c. The excess of the face value over the present value d. The excess of the present value over the face value 11.Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because a. Most short-term receivables are not interest-bearing b. The allowance for uncollectible accounts includes a discount element c. Most receivables can be sold to a bank of factor d. The amount of the discount is not material 12.On October 1, 2011, a company 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 on September 30, 2012. The interest receivable account at December 31, 2011 would consist of the amount representing a. Nine months of accrued interest income b. The excess on October 2, 2011 of the present value of the note receivable over its face value c. Three months of accrued interest d. Twelve months of accrued interest income
13.Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory? a. Matching b. Substance over form c. Verifiability d. Accrual basis 14.In an entity’s April 30 statement of financial position, a note receivable was reported as a noncurrent asset and the accrued interest for eight months was reported as a current assed. Which of the following terms would fit the entity’s note receivable a. Principal and interest are due December 31, 2012 b. Both principal and interest are payable on December 31, 2012 and December 31, 2013 c. Both principal and interest are payable on August 31, 2012 and August 31, 2013. d. Principal is due August 31, 2013, and the interest is due August 31, 2012 and August 31, 2013 15.On July 1, 2013, 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, 2015. Interest receivable on December 31, 2013 is a. 5% of the July 1, 2012 present value of the amount due on June 30 2014 b. 4% of the July 1, 2012 present value of the amount due on June 30, 2014 c. 5% of the face amount of the note d. 4% of the face amount of the note
PRACTICAL ACCOUNTING 1 For Number 16: The following selected transactions occurred during the year ended December 31,2012: Gross Sales (Cash and Credit) P750,614 Collections from credit customer, net of 2% cash discount 245,000 Cash Sales 150,000 Uncollectible accounts written off 16,000 Credit memos issued to credit customers for sales returns 8,400 Cash refunds given to cash customers for sales returns 12,640 Recoveries on accounts receivable written off in previous
years (not included in the cash received stated above) 5,421 At the year-end, the company provides for estimated bad debt losses by crediting the Allowance for Bad Debts account for 2% of net credit sales 16.What is bad debts expense to be reported for 2012? a. P11,844 c. P14,744 b. P11,744 d. P11,491
For number 17: Bikko Inc. reported the following balances (after adjustment) at the end of 2013 and 2012 12/31/2013 12/31/2012 Total Accounts Receivable P105,000 P96,000 Net Accounts Receivable 102,000 94,500 During 2013, Bikko wrote off customer accounts totalling P3,200 and collected P800 on accounts previously written off. 17. Bikko’d doubtful accounts expense for the year ending December 31,2013 is a. P1,500 b. P2,400
c. P3,000 d. P3,900
For Numbers 18,19, 20 Calachuchi Corp.’s accounts receivable subsidiary ledger shows the following information: CUSTOMER AMOUNT
ACCOUNT BALANCE DEC. 31, 2012
Aruy Inc. P14, 000
P35, 180
INVOICE DATE 12/06/12 11/29/12
21,180 Naku Co. 12,000
20,920
09/27/12 08/20/12
8,920
Syak Corp. 20,000
30,600
12/08/12 10/25/12
10,600 Trip Co. 23,140
45,140
11/17/12 10/09/12
22,000 Uy, Co. 19,200
31,600
12/12/12 12/02/12
12,400 Xac Corp. 17,400
17,400
09/12/12
The estimated bad debts rates below are based on Calachuchi Corps. Receivable collection experience Age of Accounts 0-30 days 31-60 days 61-90 days 91-120 days Over 120 days
Rate 1% 1.5% 3% 10% 50%
The following for bad debts account had a debit balance of P4000 on December 31, 2012, before adjustment. 18.The Company’s account receivable under “61-90 days” category totalled a. P32,600 c. P44,600 b. P44,320 d. P42,000 19.The allowance for bad debts to be reported on the balance sheet at December 31, 2012 is a. P13,199 c. P9,699 b. P6,199 d. P9,043 20.What entry should be made on December 31, 2012, to adjust the allowance for bad debts account? a. Bad Debt Expense 13,699 Allowance for Bad Debts 13,699 b. Bad Debt Expense Allowance for Bad Debts c. Allowance for Bad Debts
5,199 5,199 5,199
Bad Debt Expense
5,199
d. Bad Debt Expense Allowance for Bad Debts
9,699 9,699
21.Lemonade, Inc. estimates its bad debt losses by aging its accounts receivable. The aging schedule of accounts receivable at December 31, 2013 is presented below: Age of Accounts 0-30 days 31-60 days 61-90 days 91-120 days Over 120 days
Amount P 843, 200 461, 000 192, 400 76, 650 39, 400
Lemonade computes the year-end balance of the allowance for bad debts based in the average loss experience for the past 5 years. Lemonade’s uncollectible account experience for the past 5 years is summarized in the following schedule: A/R Balance 0ver 120 Year Dec. 31 Days 2012 P 1, 312, 500 65% 2011 999, 999 70% 2010 465, 000 69% 2009 816, 000 81% 2008 1, 243, 667 95%
0-30 Days 0.3%
31-60 Days
61-90 Days
1.8%
12%
91-120 Days 38%
0.5%
1.6%
11%
41%
0.2%
1.5%
9%
50%
0.4%
1.7%
10.2%
47%
0.9%
2.0%
9.7%
33%
The balance of the allowance for bad debts account at December 31, 2013 (before adjustment) is P84, 500. What is the NET REALIZABLE VALUE of accounts receivable at December 31, 2013? a. P 1, 518, 887 b. P 1, 528, 150
c. P 1, 603, 387 d. P 1, 612, 650
22.During the year, McGrady Company made and entry to write-off a P 4, 000 uncollectible account. Before this entry was made, the balance of accounts receivable was P50, 000 and the balance in the allowance account was P4,
500. The net realizable value of accounts receivable after the write-off entry was a. P50, 000 b. P49, 500 c. P41, 500 d. P45, 500 23.ART Inc. made a P10, 000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue? a. P9, 800 b. P9, 900 c. P10, 000 d. P10, 100 24.Frame Co. has an 8% note receivable dated June 30, 2007, in the original amount of P150, 000. Payments of P50, 000 in principal plus accrued interest are due annually on July 1, 2008, 2009, 2010. In its June 30, 2009 balance sheet, what amount should Frame report as a current asset for interest on note receivable? a. 0 b. P4, 000 c. P8, 000 d. P12, 000 25.On January 1, 2011, Ott Company sold goods to Fox Company. Fox signed a noninterest bearing note requiring payment of P600, 000 annually for seven years. The first payment was made on January 1, 2011. The prevailing market rate of interest for this type of note at the date of issuance was 10%. Information of present value factors is as follows: Present value Present value Present value Present value
of of of of
1 at 10% for 6 periods 1 at 10% for 7 periods ordinary annuity of 1 at 10% for 6 periods ordinary annuity of 1 at 10% for 7 periods
.56 .51 4.36 4.87
What should be recorded as sales revenue in January 2011? a. 3, 216, 000 b. 2, 922, 000 c. 2, 616, 000 d. 2, 142, 000 26.On December 27, 2011, Lily Company sold a building, receiving as consideration a P4, 000 000 noninterest-bearing note due in three years. The building had a cost of P3,800,000 and the accumulated depreciation was P1,600,000 at the date of sale. The prevailing rate of interest for a note this type was 12%. In its income statement, what amount of gain should Lily report on the sale? Round PV factor to three decimal places. a. 1,800,000 c. 200,000 b. 648,000 d. 0 27.SayonKAAYOko Co. sold some machinery to the MAObitaw Co. on January 1, 2011, for which the cash selling price was P7, 582, 000. MAObitaw Co. entered into an instalment sale contract with SayonKAAYOko Co. at an interest rate of 10%. The Contract required payments of P2 million a year for over five years, with the first payment on
January 1, 2011. What amount of interest income should be included in SayonKAAYOko Co.’s 2012 using the interest method? a. b. c. d.
P1,000,000 414,020 634,020 0
28.Alamo Company sold one of its factories in January 2, 2013 for seven million. Alamo received a cash down payment of one million and a four-year, twelve percent note for the balance. The note is payable in equal annual payments of principal and interest of P1,975,400 payable of December 31 each year until 2016. What is the carrying amount of the note receivable of December 31, 2013? a. 4, 500, 000 b. 4, 744, 600 c. 4, 624, 600 d. 4, 025, 600 29.On December 31, 2011, Park Company sold used equipment and received a noninterest-bearing note requiring payment of P500,000 annually for ten years. The first payment is was paid on December 31, 2012 and the prevailing rate of interest for this type of note at the date of issuance is 12%. What is the carrying amount of the note at December 31, 2013 that will be reported at the statement of financial position? Round PV factor to 3 decimal places. a. 1,610,000 b. 2,825,000 c. 5,000,000 d. 2,483,680 30.On June 30, 2011, Emme Company sold equipment with an original cost of 4,800,000 which was purchased on January 1, 2010 and with an estimated useful life of 6 with no residual value. As a consideration, Emme company received a noninterest bearing note amounting P4,000,000 due on April 30, 2014. The prevailing market rate of interest for this type of note was 10% at the issuance. The present value of 1 at 10% for 3 periods is 0.75. In Emme’s income statement, at what amount should be reported as gain or loss or sale of equipment assuming the straight line method of depreciation is used. a. 600,000 gain b. 600,000 loss c. 1,000,000 gain d. 1,000,000 loss
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Suggested Answers: 1. D 2. C 3. A 4. A 5. A 6. C 7. D 8. A 9. A 10.
11.
12. 13. 14. 15. 16. 17. 18. 19. 20.
C B D C A D A C A
21. 22.
A D
C
D
23. 24. 25. 26. 27. 28. 29. 30.
B B C B B B D B
