Part I. Multiple Choice Theories.

Choose the letter of the correct answer.

1. As contemplated in accounting, cash includes
a. Money only
b. Money and any negotiable instrument
c. Any negotiable instrument
d. Money and any negotiable instrument that is negotiable instrument that is payable in money and acceptable
by the bank for deposit and immediate credit
Answer: D
2. To be reported as “cash”, cash must be
a. Unrestricted in use for current operations
b. Available for the purchase of property of property, plant and equipment
c. Set aside for the liquidation of a long-term debt
d. Deposited in a bank
Answer: A
3. Cash is presented on the statement of financial position at face value being its fair value on the date. Cash
denominated in foreign currency must be translated using the exchange rate in effect at the
a. Beginning of the reporting period
b. End of the reporting period
c. Forward contract rate
d. Average exchange rate
Answer: B
4. Which of the following are considered cash for financial reporting purposes
i. Petty cash fund and change fund
ii. Money orders, traveler’s checks and personal checks
iii. Coins, currency, and available funds
iv. Postdated checks and IOUs
v. Savings account for employees’ travel
vi. Savings account for acquisition pf equipment
vii. Savings account for acquisition of inventories
a. i,ii,iii,iv,v,vi and vii b. i,ii,iii,v,vi, and vii c. i,ii,iii,iv,v and vi d. i,ii,iii,v, and vii
Answer: D
5. Which of the items should not be included in in cash caption on the balance sheet?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposits in checking accounts at the bank
d. Postage stamps on hand and travel advances
Answer: D
6. What is a compensating balance?
a. Savings account balances
b. Margin accounts held with brokers
c. Temporary investments serving as collateral for outstanding loan
d. Minimum deposits required to be maintained in connection with a borrowing arrangement
Answer: D
7. In which account are cash in closed banks or in banks having financial difficulty or in bankruptcy classified?
a. Receivables
b. Prepaid Expenses
c. Cash
d. Payables
Answer: A
8. Bank overdrafts generally should be
a. reported as a deduction from the current asset section.
b. reported as a deduction from cash.
c. netted against cash and a net cash amount reported.
d. reported as a current liability.
Answer: D
9. Unreleased checks (checks drawn before balance sheet date but held for later delivery to creditors)
a. Should be treated as outstanding receivable
 b. Should be restored to the cash balance
c. Should be treated as outstanding checks if the date is shortly after the balance sheet date
d. Should be treated as outstanding checks if they are ultimately en-cashed
Answer: B
10. Which of the following is usually considered as cash?
a. Certificates of deposits
b. Checking accounts
c. Money market saving certificates
d. Postdated checks
Answer: B
11. Statement 1: In accordance with PAS 1, par. 66, an entity shall classify an asset as current when the asset is
cash or cash equivalents unless the asset is restricted from being exchange or used to settle a liability for at
least twelve months after the reporting period.
Statement 2: In accordance to PAS 7, par 6, cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which subject to an insignificant risk of changes in
value.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
Answer: C
12. All of the following can be classified as cash and cash equivalents, except?
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayments in 90 days
c. Equity investments
d. A bank drafts
Answer: C
13. Which of the following is NOT a basic characteristics of a system of cash control?
a. Use a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposits of all cash received
d. Internal audit at irregular interval
Answer: B
14. A system or method wherein the petty cash fund is replenished by writing a check equal to the payments that
have been made
a. Fluctuating fund method
b. Imprest fund system
c. Internal control systems
d. Voucher systems
Answer: B
15. Which of the following statements is NOT true
a. Adjustment of the petty cash is made at the end of the period is to avoid understatement of expenses and
overstatement of cash.
b. Entries are made to the petty cash account to increase or decrease the size of the fund or to adjust the
balance if not replenished at the year-end.
c. The imprest petty cash system in effect adheres to the rule of disbursement by the checks.
d. The petty cash account is debited when the fund is replenished.
Answer: D
16. A Cash Over and Short account
a. Is not generally accepted
b. Is a contra account to cash
c. Is debited when the petty cash fund proves out over
d. Is debited when the petty cash fund proves out short
Answer: D
17. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the
depositor’s records and to identify bank errors. Adjustments on the part of the depositor should be recorded
for
a. Bank errors, outstanding checks and deposit in transit
 b. All items except bank errors, outstanding checks and deposit in transit
c. Book errors, bank errors, deposit in transit and outstanding checks
d. Outstanding checks and deposits in transit
Answer: B
18. Which of the following reconciling items would require an adjusting entry on the company’s book
a. Non-sufficient funds check
b. Outstanding checks
c. Cash on Hand
d. Erroneous bank debit
Answer: A
19. If the cash shown in a company’s accounting records is less than the correct cash balance, and neither the
company nor the bank has made any errors, there must be
a. Bank charges not yet recognized by the company
b. Outstanding checks
c. Deposits credited by the bank, not yet recorded by the company
d. Collections not yet deposited
Answer: C
20. Worship Company prepares a four-column bank reconciliation. Check #888 was written for P5,670 on the
books, but the checks was written and cleared by the bank for correct amount of P6,570. The correct
treatment on the reconciliation would be
a. On the bank side, deduct P900 from payments and add P900 to ending balance
b. On the book side, deduct P900 from payments and add P900 to ending balance
c. On the bank side, add P900 to receipts and add P900 to ending balance
d. On the book side, add P900 to payments and deduct P900 from ending balance
Answer: D
21. Accounts receivable is initially recognized at ____________ and subsequently to initial recognition are
measured at _____________
a. Present Value, Cost
b. Fair Value, Amortized cost using effective interest method
c. Net Realizable value, Amortized cost using straight line method
d. Maturity Value, Fair Value
Answer: B
22. If the note receivable is exchange for property and no interest rate is stated, the note to be recorded at the
a. Fair market value of property or note
b. Maturity value of the note
c. Face value of the note
d. Carrying (book) value of the property
Answer: A
23. Trade receivables are classified as current assets when they are reasonable expected to be collected
a. Within one year
b. Within normal operating cycle
c. Within one year or within normal operating cycle, whichever is shorter
d. Within one year or within normal operating cycle, whichever is longer
Answer: D
24. Which nontrade receivables are usually shown as non-current asset?
a. Advances to subsidiary
b. Advances to employees
c. Advances to suppliers
d. Creditor’s account with credit balances
Answer: A
25. Which of the following is NOT true?
a. Notes Receivable are generally reported as current assets
b. In the gross method, sales discount are reported as deduction from sale
c. Sales Discount Forfeited account is reported as other operating income in profit or loss ratio on the statement
of comprehensive income.
d. The recovery of accounts previously written off would increase accounts receivable.
Answer: D
26. ABC cycle shop sells a bicycle to BSA, a customer who uses Express Card (a national credit card, but not
issued by a bank). In recording this sale, ABC cycle shop should record
 a. A cash receipt (cash sales)
b. An account receivable from BSA
c. An account receivable from Express Card
d. A small increase in allowance for doubtful accounts
Answer: C
27. If accounts receivable are pledge against borrowings, the amount of accounts receivable pledge should be
a. Excluded from total receivables with disclosures
b. Excluded from total receivables without disclosures
c. Included from total receivables with disclosures
d. Included from total receivables without disclosures
Answer: C
28. A loss on sales of receivable is recorded when the sale is
a. With recourse
b. Without recourse
c. Pledging
d. With or without recourse
Answer: B
29. A method of estimating doubtful accounts that emphasize asset valuation rather than income measurement is
the allowance method based on
a. Aging the accounts receivable
b. Direct write-off
c. Gross sales
d. Credit sales less return and allowances
Answer: A
30. When the accounts receivable of a company are sold outright to a company that normally buys accounts
receivable of other companies without recourse , the accounts receivable have been
a. Transferred with recourse
b. Factored
c. Assigned
d. Pledged
Answer: B
Part II. Multiple Choice Problems
Choose the letter of the correct answer.
31. The following information has been extracted from the accounting records of Moira Company at December
31, 2018:
Cash on hand (undeposited sales receipts) P 40,800.00
Certificate of time deposit with maturity of three months 1,000,000.00
Customer’s note receivable 40,000.00
Reconciled balance in BPI checking account (14,000.00)
Reconciled balance in BDO checking account 374,000.00
Balance in Metrobank savings account 342,400.00
Customer’s post-dated check 54,000.00
Employee travel advances 64,000.00
Cash in bond sinking fund 48,000.00
Bond sinking fund investments 323,600.00
Postage stamps 17,200.00

What is the total amount of cash to be reported in the statement financial position?
a. P805,200 b. P743,200 c. P757,200 d. P703,200
Answer: C (40,800+374,000+342,400)
32. The “cash account” of the Zephanie Corporation as of December 31, 2018 consist of the following:
Cash in Bank P 2,000,000
Time deposit – 30 days 1,000,000
NSF checks of customer 40,000
 Money Market Replacement ( due June 30, 2019) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension Fund 3,000,000
Petty Cash Fund 10,000
Customer’s checks dated Jan 1, 2019 50,000
Customer’s check outstanding for 18 months 40,000
Total P7,760,000
Additional information follows
a. Check of P200,000 in payment of accounts payable was recorded on December 31, 2011 but mailed to
suppliers on January 05, 2019
b. Check of 100,000 dated January 15, 2019 in payment of accounts payable was recorded and mailed on
December 31, 2018.
c. The company uses the calendar year. The cash receipts journal was held open until January 15, 2019,
during which time P400,000 was collected and recorded on December 31, 2018.
What is the total amount of cash and cash equivalents to be shown on the December 31, 2018 statement of
financial position?
a. P3,310,000 b. P1,910,000 c. P 2,910,000 d.P4,410,000
Answer: C (2,000,000+1,000,000+10,000+200,000+100,000-400,000)
33. In connection with your observation of Lucas Corporation for the year ended December 31, 2018, you
gathered the following:
Current Account at BDO
P2,000,000
Current Account at Metrobank
(600,000)
Payroll account
500,000
IOU from controller’s sister
10,000
Credit Memo from a vendor for purchase return
16,000
Traveler’s Checks
50,000
NSF checks
12,000
Money order
30,000
Petty cash fund ( P4,000 in currency and expense receipts for P6,000)
10,000
Treasury Bills, due 2/28/19 (purchased 11/31/18)
200,000
Treasury Bills, due 3/31/19 (purchased 3/1/18)
500,000
Foreign bank account (in USD)
25,000

USD to PHP conversion rate are follows: average – P41, closing – P40. Based on the above information, compute
for the cash and cash equivalents that would reported on the December 31, 2018 balance sheet.
a. P2,704,000 b. 2,790,000 c. P3,084,000 d. P3,784,000
Answer: D (2M+.5M+50k+30k+4k+200k+(25kx40)
34. Dan Company had the following account balances at December 31, 2018
Cash in Bank P900,000
Cash on Hand 120,000
 Cash legally restricted for plant expansion ( expected to be disbursed on 1,500,000
2019)
Cash in bank include P250,000 of compensating balance against short-term borrowing arrangements. The
compensating balance is not legally restricted as to withdrawal by Dan. In the current assets sections of Dan’s
December 31, 2018 statement of financial position, total cash should be reported at
a. P770,000 b. P1,020,000 c. P2,270,000 d, P2,520,000
Answer: B (900,000+120,000)
35. Regine Company is negotiating a loan with BPI Family Bank. Regine needs P3,600,000. As part of the loan
agreement, BPI will require Regine to maintain a compensating balance of 15% of the loan amount on
deposit in checking account at the bank. Regine currently maintains a balance of P200,000 in the checking
account. The interest rate Regine is required to pay on the loan is 12% BPI pays 1% interest on checking
accounts. The amount of the loan is:
a. P3,400,000 b. P3,600,000 c. P3,800,000 d. P4,000,000
Answer: D (3,600,000-200,000)/.85
36. James Company decided to establish a petty cash fund to help ensure internal control over its small cash
expenditures. The following information is available for the month of May.
1. On May 1, it a petty cash fund in the amount of P40,000
2. A summary of the petty cash expenditures made by the petty cash custodian as of May 22 is as follows
Delivery charges paid on merchandise purchased P12,000.00
Supplies purchased and used 5,000.00
Postage expense 6,600.00
IOU from employees 3,400.00
Miscellaneous expense 7,200.00

The petty cash was replenished on May 22. The balance in the fund was P5,400.00
The petty cash fund was increase to 60,000 on May 25.
The balance of the petty cash fund that will be presented as part of cash in the April 30 balance sheet is
a. P60,000 b. P40,000 c. P34,6000 d.P100,000
Answer: A
37. You rendered a cash count on the company’s petty cash fund on June 30, 2018. The custodian presented
you the following :
Currencies and coins P37,620
A disbursement check payable to the custodian 46,800
An officer’s personal check accommodated by the fund 12,000
Manager’s checks marked NSF 6,000
Petty Cash expense vouchers
6/20 Transportation expense 4,500
6/24 Office repairs 2,700
6/27 Miscellaneous 6,300
Unused postage stamps 1,500
An enveloped marked “collections for charity” with list of names
and corresponding amounts contributed. There is no money inside
the envelope. 7,500

The company’s fiscal year ends of June 30. The petty cash fund was established for an amount of
P120,000.
How much is the shortage or overage in the petty cash fund at June 30, 2018
a. P11,580 b. P17,580 c. P4,080 d. P10,080
Answer: A (120,000+7,500) – (37,620+46,800+12,000+4,500+2,700+6,300+6,000))
38. The cash account shows a balance of P900,000 before reconciliation. The bank statement does not include a
deposits of P46,000 made on the last day of they of the month. The bank statement shows a collection by the
bank of P18,800 and a customer’s check for P6,400 was returned because it was NSF. A customer’s check
 for P10,800 was recorded on the books at P9,000, and a check written for P1,590 was recorded as P1,950.
The correct cash balance in the cash account was:
a. P910,240 b. P910,960 c. P914,560 d. P956,960
Answer: C (900,000+18,800-6,400+10,800-9000-1590+1950)
39. The following pertains to checking account of a company at June 30, 2018.
Balance per book P214,500
Interest earned for the second quarter 500
Outstanding Checks 15,000
Customer’s checks returned for insufficient funds 5,000
Deposits in Transit 25,000
How much is cash balance per bank?
a. P220,000 b.210,000 c. P224,500 d. P200,000
Answer: D (214,500+500-5000+15,000-25,000)
40. The following information pertains to James Corporation as December 31, 2018:
Cash balance per bank statement P8,000,000
Deposit in Transit 2,600,000
Checks outstanding (including certified checks of 200,000) 1,000,000
Customer note collected by the bank for James 300,000
NSF checks of customers returned by bank 400,000
Bank service charge shown in December bank statement 40,000

Error made by James in recording check that cleared the bank in

December (check was drawn in December for P200,000 but recorded at 180,000
P20,000

What is the cash balance per ledger on December 31, 2018?

a. P10,120,000 b. 9,940,000 c.P9,800,000 d. P9,760,000
Answer: A (P8,000,000+2,600,000-800,000-300,000+400,000+40,000+180,000)
For Problem 41-42
In reconciling the Cash in Bank of Billy Company with the bank statement balance for the month of November 2018,
the following data are summarized :
Book debits for November, including October CM for note collected, P60,000 P800,000
Book credits for November, Including NSF of P20,000 and service charge of P800 for October 620,000
Bank credits for November, including CM for November for bank loan of P100,000 and October 700,000
Deposit in transit for P80,000
Bank debits for November, including October outstanding checks of P170,800 and November service 600,000
charge of P200

41. What is the amount of outstanding checks for November?

a. P20,000 b. P170,200 c. P171,000 d. 191,000
Answer: B (170,800+620,000-20,000-800-600,000+200)
42. What is the amount of deposit in transit for the month of November?
a. P40,00 b. P100,000 c. P140,000 d. P220,000
Answer: D (80,000+800,000-60,000-700,000+100,000)
Problem 43-44
The following bank reconciliation is presented for the Trish Co. for the month of November 2018:
Balance per bank statement, P360,800
11/30/18
Add: Deposit in Transit P 83,000
Erroneous bank charges 30,000 113,000
Subtotal P473,800
Less: Outstanding Checks 156,400
Balance per books, 11/31/18 P317,400
 Data for the month of December 2018 follows:
Per Bank: December deposits/credits P522,000
December charges/debits 448,400
Balance, December 31, 2018 434,400
All items that were outstanding as of November 30 cleared through the bank in December, including the bank
charge. In addition, P50,000 in checks were outstanding as of December 31, 2018
43. What is the amount of cash disbursement per books in December 2018?
a. P292,000 b. P342,000 c. P492,000 d. P554,800
Answer: B (448,400-156,400+50,000)
44. What is the amount of cash receipts per book in December 2018?
a. P409,000 b. P439,000 c. P492,000 d. P635,000
Answer: A (522,000-83,000-30,000)
45. Fatima Inc. reported a balance of P43,000 in its cash account at the end of the month. There were P20,000
deposits in transit and P15,000 outstanding checks. The bank statement showed a balance of P50,000,
including a note with face value of P15,000 and P6,000 service charge .
How much is the interest on the note collected by the bank?
a. P3,000 b. P6,000 c. P9,000 d. P12,000
Answer: A (50,000+20,000-15,000)-(43,000+15,000-6,000)

46. On June 1, 2018, FINEST Corp. sold a merchandise with a list price of P300,000 to JPIA Co. on account.
Peter was given the following trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale
was made F.O.B. point of destination. On June 10, 2018, the merchandise were delivered to JPIA Co. Under
allowance method how much of account receivable recognized by FINEST Corp. upon sale?
a. P168,000 b. P164,640 c. P300,000 d.P146,460
Answer: A (300,000x.70x.80)
47. Montefalco Company provided some information on their financial records on December 31, 2019.
Accounts Receivable, January 1 P1, 920,000
Collections of account receivable 6,240,000
Bad debts 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts Payable, January 1 1,000,000
Accounts Payable, December 31 1,500,000
Cash Sales 1,200,000
Purchases 4,800,000
Gross Profit on Sales 2,160,000

What is the ending balance of Accounts Receivable on December 31,2019?

a. P1,680,000 b. P2,880,000 c. P3,120,000 d.P 4,080,000
Answer: A

Inventory, January 1 P 2,880,000

Purchases 4,800,000
Total Goods available for sale P 7,680,000
Less: Inventory, Dec.31 2,640,000
Cost of Sales P 5,040,000
Add: Gross Profit 2,160,000
Total Sales P 7,200,000
Less: Cash Sales 1,200,000
Sales on Account P 6,000,000
Add: AR, January 1 1,920,000
Total P 7,920,000
Less: Collection of AR 6,240,000
AR, December 31 P 1,680,000

48. The following data relate to accounts receivable of Arryn Company for 2019:

Accounts Receivable, January 1 P 650,000

Credit Sales 2,700,000
Sales return 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at December 31 per aging 110,000

What amount should Arryn report as net realizable value of accounts receivable on December 31, 2019?
a. 1,200,000 b. 1,125,000 c. 1,085,000 d. 925,000
Answer: D

Accounts Receivable, January 1 P 650,000

Credit Sales 2,700,000
Total P 3,350,000
Less: Collection from customer P 2,150,000
Accounts written off 40,000
Sales returns 75,000 2,265,000
Accounts Receivable – December 31 1,085,000
Less: Allowance for doubtful accounts P 110,000
Allowance for sales returns 50,000 160,000
Net realizable value P925,000

49. JPIA Company uses the allowance method of accounting for bad debts. The following summary schedule
was prepared from an aging of accounts receivable outstanding on December 31 of the current year:

Number of days outstanding Amount Probability of Collection

0-30 days P5,000,000 .98

31-60 days 2,000,000 .90

over 60 days 1,000,000 .80

The following additional information is available for the current year:

Net credit sales for the year P40,000,000
Allowance for doubtful accounts Jan. 1, 450,000(Cr.)
December 31, before adjustments 20,000 (Dr.)

If Marian Company bases its estimate on the aging of accounts receivable, what amount should be recognized as
doubtful accounts expense for the current year?
a. 470,000 b. 480,000 c. 500,000 d. 520,000
Answer: D

0-30 days (5,000,000 x 2%) 100,000

31-60 days (2,000,000 x 10%) 200,000
Over 60 days ( 1,000,000 x 20%) 200,000
Required allowance – December 31 500,000
Add: Debit balance in allowance 20,000
Doubtful accounts expense 520,000
 50. On December 31, 2019, general ledger of Jonaxx Company’s account receivable showed a balance of P1,
100,000. Because of continuing decrease in expected cash flows on its financial asset, Jonaxx Company has
decided to estimate the cash flows of the outstanding receivables. The estimates are based on the expected
peso amount to be received on the outstanding receivable; the category (age) which also includes the length
and period of collectability and time factor for similar borrowers.
Category Amount Time factor
Elijah 400,000 .909
Azi 300,000 .826
Noah 250,000 .751
Rozen 150,000 .683

How much should Jonaxx Company report its account receivable in its December 31, 2019 statement of financial
position?
a. P 799,150 b. P 901,600 c. P 1,200,000 d. P 1,400,000
Answer: B

Category Amount Time Factor Amortized Cost

Elijah P 400,000 .909 P 363,600

Azi 300,000 .826 247,800
Noah 250,000 .751 187,750
Rozen 150,000 .683 102,450
Total P 1,100,000 P 901,600

51. Lance Corporation’s Accounts Receivable subsidiary ledger shows the following information:
Customer Account Balance Invoices
December 31, 2018 Sales Amount
Date
Buwan Company P35,180 12/6/2018 P14,000
11/29/2018 21,180
Klwkn Inc. 20,920 9/27/2018 12,000
8/20/2018 8,920
Mundo Corp. 30,600 12/8/2018 20,000
10/25/2018 10,600
Ikaw at Ako Co. 45,140 11/17/2018 23,140
10/9/2018 22,000
Hindi na Nga Inc. 31,600 12/12/2018 19,200
12/2/2018 12,400
Kahit Ayaw Mo Na Corp. 17,400 9/12/2018 17,400

The estimated bad debts rates below are based on Lance’s receivable collection experience.
Age of Accounts Rate
0-30 days 1%
31-60 days 1.50%
61-90 days 3%
91-120 days 10%
Over 120 days 50%
The allowance method for bad debts account had a debit balance of P5,500 on December 31, 2018 before
adjustments. The allowance of bad debts to be reported at December 31, 2018 is
a. P9,699 b. P15,199 c. P4,199 d. P5,500
Answer: A (14,000+20,000+19,200+12,400).01 + (21180+23140).015 + (10,600+22,000).03 +
(12,000+17400).10 + 8920(.50)
52. You are given the following information relating to Elle Trading:
Gross Profit based on cost 25%
Accounts Receivable, December 31, 2017 P120,000
 Allowance for bad debts, December 31, 2017 3,000
Collections of accounts receivable in 2018 645,000
Cost of Goods Available for Sale in 2018 690,000
Merchandise Inventory, December 31, 2018 150,000
Assuming all sales were on account and estimated bad debts was 5% of sales, what is net realizable value of
accounts receivable December 31, 2018?
a. P150,000 b. 142,500 c. P116,250 d. P113,250
Answer: D
53. . Miguel Department Store starts its business on May 1, 2019 and completes the following transactions
relating to credit card sales during May:
 Total sales charged by customers are as follows:
BPI P600,000
RCBC 1,200,000
Eastwest 1,500,000

 Deposits made by the bank to charge the account of Miguel for credit card sales , net of 3% service charge.

BPI P407,400
RCBC 814,800
Eastwest 1,018,500
How much is the accounts receivable as of May 31, 2019?
a. P3,300,000 b. P2,310,000 c. P1,059,300 d. P990,000
Answer: D 600-(407.4/.97) + 1200-(814.8/.97) + 1500-(1,018.5/.97)
54. The Tully Company's ledger balance for Notes Receivable includes a note receivable from Arryn Company.
Company Arryn is undergoing bankruptcy proceedings and has negotiated for restructuring of its note, with
face amount of P4,000,000, and accrued interest of P480,000, based on interest rate of 12%. The note is due
on this date, December 31, 2019. The restructuring arrangement calls for P1.120,000 annual payment with
first payment due on December 31, 2020. No further interest will be collected during the extended four-year
term. Based on the ledger balance of the company for allowance for uncollectible notes and accounts,
P100,000 relates to this note.
What is the impairment loss on Notes Receivable on December 31, 2019?
b. P987,422 b. P978,224 c. P1,120,000 d. P4,000,000
Answer: B
Problem 54-56
On January 1, 2019, Finest Company sold an equipment that originally cost of P750,000. Finest Company received
a P900,000 note as payment for this transaction. The note is payable in three annual installments of P300,000
beginning December 31, 2019 plus interest at the rate of 15% based on the outstanding balance. At January 1,
2019, the prevailing rate of interest for a similar obligation is 10%.

55. What is the present value of the note at January 1, 2019?

a. P976,975 b. P97,697.50 c. P30,786 d. P746,055
Answer: A

Due Date Principal Interest Due Total amount PV factor PV January 1,

due 2019
12/31/19 300,000 135,000 435,000 0.90909 395,454
12/31/20 300,000 90,000 390,000 0.82645 322,316
12/31/21 300,000 45,000 345,000 0.75132 259,205
Total 976,975

56. What is the interest revenue at December 31, 2019?

a. P976,975 b. P97,697.50 c. P30,786 d. P746,055
Answer: B

Present value of note 976,975

Multiply: effective interest 10%
Interest Revenue 97,697.50

57. Based on above statement, assuming the nominal interest is 8%, what is the balance of Discount on Notes
Receivable on January 1, 2019?
a. 976,975 b. P97,697.50 c. P30,786 d. P746,055
Answer: C

Due Date Principal Interest Due Total amount PV factor PV January 1,

due 2019
12/31/19 300,000 72,000 372,000 0.90909 338,181
12/31/20 300,000 48,000 348,000 0.82645 287,605
12/31/21 300,000 24,000 324,000 0.75132 243,428
Total 869,241
Face value of note 900,000
Apresent value of note 869,241
Discount on notes receivable 30,786
58. On July 1,2019 Hyungsik Corporation sold equipment to Bogum Corporation for 250,000. Hyungsik accepted
a 10% note receivable for the entire sales price. This note is payable in two equal installments of 125,000
plus accrued interest on December 31, 2019 and December 31, 2020. On July 1, 2020, Hyungsik discounted
the note at a bank at an interest rate of 12%

How much was Hyungsik ‘s proceeds from the discounted note?

a. P121,000 b. P123,375 c. P125,875 d. P129,250
Answer: D
Interest ( 125,000 x 10%) P 12,500
Maturity Value ( 125,000+ 12,500) P 137,500
Discount (137,500 x 12% x 6/12) P 8,250
Proceeds ( 137,500- 8250) P 129,250

59. On July 31, 2019 Elizalde Company discounted at the bank a customer’s 600,000, 6-month , 10% note
receivable dated May 31,2019. The bank discounted the note at 12%. How much is the proceeds Elizalde
receive from this discounted note?
a. P564,000 b. P576,000 c. P604,800 d. P617,400
Answer: C
Interest ( 600,000 x 10% x 6/12) P 30,000
Maturity Value ( 600,000 + 30,000) P 630,000
Discount ( 630,000 x 12% x 4*/12) P 25,200
Proceeds ( 630,000- 25,200) P 604,800
It is the unexpired term of the note when it was discounted, it is commonly known as the discounted period.
Term: 6 months
Less :Expired term from 5/31/19 to 7/31/19 2 months
Unexpired term (discounted period 4 months

60. On February 1,2019, Marga Corporation factored receivables with the carrying amount of 2,000,000 to
Cassie Corporation. Marga Corporation assesses a finance charge of 3% of the receivables and retains 5%
of the receivables.
If the factoring is treated as a sale, what amount of loss from sale should the company report in its 2019 statement
if comprehensive income for the year 2019?
a. None b. P60,000 c. P100,000 d. P160,000
Answer: B
Amount Factored P 2.000.000
Less: Finance Charge (P 2,000,000 x 3%) P 60,000
Holdback ( P 2,000,000 x 5%) 100,000 160,000
Amount Received P 1,840,000
Add: New asset received (holdback) 100,000
Total Consideration Received P 1,940,000
Less: Carrying value of the receivable equal to the face 2,000,000
Loss on Factoring P 60,000
 61. Blue Company factored 750,000 of accounts receivable to Red Company on December 1, 2019. Blue
Company retained significant amount of risks and rewards of ownership and continues to manage the
financial asset.

Red accepted the receivable, assessed a fee of 2% and retains a holdback equal to 4% of the accounts
receivable. In addition, Red charged 12% interest on the amount advanced.
What amount of finance cost should Blue Company report in its December 2019 statement of
comprehensive income related to the factoring of its account receivable?

a. None b. P 7,200 c. P 15,000 d. P 22,200

Answer: D
Interest cost ( 750,000 x 96% x 12% x 30/360) P 7,200
Service Charge ( 7,500x 2%) 15,000
Total Finance Cost P 22,200
62. On October 31, 2019, Jeydon Lopez Company engaged in the following transaction s:
Obtained 500,000, six month loan from City Bank , discounted at 12%. The company pledged 500,000 of
accounts receivable as security for the loan.

Factored 1,000,000 of accounts receivable without recourse on a non-notification on basis with Candice
Gonzales Company. Help charged a factoring fee of 2% of the amount of receivables factored and withheld
10% of the amount factored.

What is the total cash received from the financing of receivables?

a. 1,320,000 b. 1,350,000 c. 1,380,000 d. 1,470,000
Answer: B
Pledging (500,000-( 500,000 x 12% x 6/12)) P 470,000
Factoring ( 1,000,000( 100% - 2% - 10%)) 880,000
Total proceeds P 1,350,000

Problem 62-63
On December 1, 2019, Rage Company assigned specific accounts receivable totaling P4,000,000 as collateral on a
P3,000,000, 12% note from certain bank. The entity will continue to collect the assigned accounts receivable. In
addition to the interest on the note, the bank also charged 5% finance fee deducted in advance on the P3, 000,000
value on the note. The December collections assigned account receivable amounted to P 2,000,000 less cash
discount of P100, 000. On December 31, 2019, the entity remitted the collections to the bank in payment for the
interest accrued on December 31, 2019 and the note payable. The entity accepted sales returns of P 150,000 on
the assigned accounts and wrote off assigned accounts of P200,000.

63. What amount of cash was received from assignment of accounts receivable on December 1,2019?
a. P 4,000,000 b. P 3,000,000 c. P 3,800,000 d. P 2,850,000
Answer: D
Note Payable P 3,000,000
Finance Fee (150,000)
Cash received on December 1 2,850,000
64. What is the carrying amount of note payable on December 31, 2019?
a. 1,000,000 b. 1,100,000 c. 1,130,000 d. 1,460,000
Answer: C
Note Payable P 3,000,000
Principal Payment
Remittance 1,900,000
Interest ( 3,000,000 x 12% x1/12) (30,000) 1,870,000
Notes payable- December 31 1,130,000