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THEORY OF ACCOUNTS

TA-1004Q2: RECEIVABLES

1. Which of the following items is classified as a financial asset?

a. Ordinary shares of the issuer
c. Accounts receivable
b. Loans payable by the borrower
d. Inventory
2. Statement I. Trade receivables are classified as current assets if they are to be collected within one year or within the
normal operating cycle, whichever is shorter.
Statement II. Non-trade receivables are classified as current assets f they are to be collected within one year or within
the normal operating cycle, whichever is longer.
a. True , True
b. True, False
c. False, True
d. False, False
3. Which of the following items is a trade receivable?
a. Claims in litigation
b. Loans to employees

c. Amounts due from customers

d. Receivables from affiliates

4. The operating cycle

a. Measures the time elapse between cash disbursement for inventory and cash collection of the sales price
b. Refers to the seasonal variations experienced by business entities
c. Should be used to classify asset and liabilities as current if it is less than one year
d. Cannot exceed a period of one year
5. On the balance sheet date, accounts receivable are generally reported at
a. Pawn value
c. Maturity value
b. Net realizable value
d. Market value
6. Receivables denominated in foreign currency should be translated to local currency using
a. Closing rate
b. Average rate
c. Historical rate
d. Mortality rate
7. A credit balance in accounts receivable that resulted from over payments, advance payments, and returns from
customers should be classified as (CUSTOMERS ACCOUNT WITH CREDIT BALANCE)
a. A current liability
c. A contra asset
b. A long term liability
d. A note disclosure
8. When a note receivable is dishonored, it is debited to
a. Accounts receivable at face value
b. Accounts receivable at face value plus interest and other charges
c. Dishonored note receivable at face value
d. Dishonored note receivable plus interest and other charges
9. Statement I: Short-term notes, interest bearing or non-interest bearing, are stated at face value.
Statement II: Interest bearing long-term notes shall be stated at face value
Statement III: Non-interest bearing long-term notes shall be stated at discounted value
a. True, True, True
b. False, True, True

c. True, False, False

d. False, False, False

10. On the basis of substance over form, the interest on a non-interest bearing note is equal to
a. Zero
b. The excess of face value over the present value
c. The excess of present value over the face value
d. The excess of the market value over the present value
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11. Uncollectible account expense

a. Should not occur if a company properly investigates customers based on credit history
b. Is the amount of entity must pay whenever a customer fails to pay his or her account
c. Is the amount an entity must pay to a collection agent to recover amounts on overdue accounts
d. Represents the loss in accounts receivable that eventually turn out to be uncollectible
12. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the
allowance method based on
a. Aging of receivables
c. Gross credit sales
b. Direct write-off
d. Net credit sales
13. The advantage of relating bad debt experience to accounts receivable is that this approach
a. Gives a reasonably correct amount of receivables in the balance sheet
b. Relates bad debt expense to the period of sale
c. Does not require knowledge of the balance in the allowance for doubtful accounts
d. Does not require estimates of uncollectible accounts
14. Under the allowance method, the entry to recognize bad debt expense
a. Increases in net income
c. Has no effect on current assets
b. Decreases current assets
d. Has no effect on net income
15. Under the allowance method, the allowance for doubtful accounts would decrease when
a. Specific account receivable s collected
b. Account previously written-off is collected
c. Account previously written-off becomes collectible
d. Specific uncollectible account is written-off
16. Under the allowance method, the entry to record the write-off of a specific account would
a. Decrease both accounts receivable and net income
b. Increases the allowance for uncollectible accounts and decreases net income
c. Decreases both accounts receivable and the allowance for uncollectible accounts
d. Decreases accounts receivable and increase the allowance for uncollectible accounts
17. Under the allowance method, entries at the time of collection of an account previously written-off would
a. Increase net income
b. Have no effect on net income
c. Decrease the allowance for doubtful accounts
d. Have no effect on the allowance for doubtful accounts
18. Under the direct write-off method, uncollectible accounts expense is recognized
a. As a percentage of net sales during the period
b. As a percentage of net credit sales during the period
c. As indicated by aging the accounts receivable at the end of the period
d. As specific accounts receivable are determined to be worthless
19. Which of the following is not a means of using receivables to obtain immediate cash?
a. Pledge and assignment of receivables
c. Aging of accounts receivable
b. Factoring of accounts receivable
d. Discounting of notes receivable
20. The amount of receivables that are hypothecated or pledged against borrowings should be
a. Excluded from total receivables with disclosure
b. Excluded from total receivables without disclosure
c. Included in total receivables with disclosure
d. Included in total receivables without disclosure
21. A financing arrangement whereby one party formally transfers its rights to accounts receivable to another party in
consideration for a loan.
a. Pledge
b. Assignment
c. Factoring
d. Discounting
22. The amount of account receivable is included in total receivables with appropriate disclosures when
a. Pledge (yes); Assigned (yes); Factored (yes)
b. Pledge (yes); Assigned (yes); Factored (no)
c. Pledge (yes); Assigned (no); Factored (no)
d. Pledge (no); Assigned (no); Factored (no)
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23. The assignors equity n assigned accounts that s required to be disclosed in the notes is equal to the
a. Assigned accounts receivable
b. Bank loan balance
c. Assigned accounts receivable minus the bank loan balance
d. Bank loan balance minus the assigned accounts receivable
24. When the accounts receivable of a company are sold outright to a company that normally buys account receivable, the
accounts receivable are said to have been
a. Pledged
c. Factored
b. Assigned
d. Collateralized
25. Factoring of receivables is usually done on a
a. With recourse, notification basis
b. Without recourse, notification basis

c. With recourse, non-notification basis

d. Without recourse, non-notification basis

26. ABC Company factored its receivables without recourse with XYZ Bank. ABC received cash as a result of this
transaction which is best described as a
a. Loan from XYZ collateralized by ABCs accounts receivable
b. Loan from XYZ to be repaid by the proceeds from ABCs accounts receivable
c. Sale of ABCs accounts receivable to XYZ, with the risk of uncollectible accounts retained by ABC
d. Sale of ABCs accounts receivable to XYZ, with the risk of uncollectible accounts transferred to XYZ
27. It is a predetermined amount withheld by a factor as a protection against customer returns, allowances and other
special adjustments
a. Equity in assigned accounts
c. Factors holdback
b. Service charge
d. Loss on factoring
28. When accounts receivables are factored,
a. Accounts receivable should be credited
b. Payable to factor is credited

c. A contingent liability is ordinary created

d. The factoring is accounted for as a borrowing

29. If a note receivable is discounted without recourse

a. The contingent liability may be disclosed in either a contra receivable or a note to the FS
b. Liability for note receivable discounted should be credited
c. Note receivable should be credited
d. The transaction should be accounted for as a borrowing as opposed to a sale
30. Note receivable discounted with recourse should be
a. Excluded from total receivables without disclosure of the contingent liability
b. Excluded from total receivables with disclosure of the contingent liability
c. Included in total receivables without disclosure of the contingent liability
d. Included in total receivables with disclosure of the contingent liability
31. For banks and financial institutions, receivables result primarily from
a. Loans
c. Withdrawals
b. Deposits
d. Credit sales
32. Under PAS 39, loans and receivables are financial assets with fixed or determinable amounts that are
a. Derivative, quoted
c. Non-derivative, quoted
b. Derivative, non-quoted
d. Non-derivative, non-quoted
33. Under PAS 39, loans and receivables are initially measured at
a. Fair value
b. Fair value plus transaction costs that are directly attributable to the acquisition
c. Maturity
d. Maturity value plus transaction costs that are directly attributable to the acquisition
34. Under PAS 39, loans and receivables are measured on the balance sheet date at
a. Cost
c. Amortized cost using straight line method
b. Fair value
d. Amortized cost using effective interest method
35. Which of the following accounts shall be considered a form of receivable?
a. Accrued income
c. Prepaid expense
b. Accrued expense
d. Unearned income

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