Intermediate Accounting 1 PROF: JOHN BO S.

CAYETANO, CPA, MBA

03 Arellano Univerisity March 15, 2022

Midterm Examination

START

1. Sunshine Inc. assigns P1,500,000 of its accounts receivables as collateral for a P1,000,000 loan with a bank. The
bank assesses a 3% finance fee and charges interest on the note at 6%. The journal entry to record this transaction
would not include a
a. Debit to cash for P970,000
b. Debit to finance charge for P30,000
c. Credit to notes payable for P1,000,000
d. Credit to accounts receivable for P1,000,000

Numbers 2-3
Janine Company factored P5,000,000 of accounts receivable. Control was surrendered by the entity. The finance
company assessed a fee of 2% and retains 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?
2. What is the amount initially received from the factoring of accounts receivable?
a. 4,250,000 c. 4,700,685
b. 4,200,000 d. 4,200,685
3. What total amount should be recognized as loss on factoring?
a. 299,315 c. 250,000
b. 799,315 d. 0
Numbers 4-5
On August 31, 2023, an entity discounted with recourse a note at the bank at discount rate of 15%. The note was
received from the customer on August 1, 2023 for 90 days with face amount of P9,000,000 and an interest rate of 12%.
The discounting transaction is accounted for as secured borrowing. The customer paid the note to the bank on October
30, 2023, the date of maturity.
4. What is the interest expense to be recognize on August 31, 2023?
a. 90,000 c. 231,750
b. 51,750 d. 270,000
5. The entry on October 30, 2023 will include
a. Debit to notes receivable discounted P9,000,000
b. Debit to loans payable P9,038,250
c. Credit cash P9,000,000
d. Debit to loans payable P9,000,000
Numbers 6-7
Marylett Company accepted forma customer in settlement of an account a P4,000,000, 90-day 12% note dated August 31,
2025. On September 30, 2025, the entity discounted the note at 15% with recourse at the bank. The note was paid in full
by the maker on maturity. The discounting with recourse is accounted for as a conditional sale with recognition of a
contingent liability.
6. What amount was received from the note receivable discounting?
a. 4,017,000 c. 4,103,000
b. 4,120,000 d. 3,965,500
7. What is the loss on note receivable discounting?
a. 40,000 c. 17,000
b. 23,000 d. 0
 Numbers 8-10
On January 1, 2021, Cactus Company sold land with carrying amount of P1,500,000 in exchange for a 9- month, 10%
note with face value of P2,000,000. The 10% rate properly reflects the time value of money for this type of note.
On April 1, 2021, Cactus Company discounted the note with recourse. The bank discount rate is 12%. The discounting
transaction is accounted for as a secured borrowing.
On October 1, 2021, the maker dishonored the note receivable. Cactus Company paid the bank the maturity value of the
note plus the protest fee of P10,000.
On December 31, 2021, Cactus Company collected the dishonored note in full plus 12% annual interest on the total
amount due.
8. What is the amount of proceeds received by Cactus Company from the discounting of note receivable?
a. 2,150,000 c. 2,050,000
b. 2,021,000 d. 1,921,000
9. What is the interest expense to be recognized by Cactus Company on April 1, 2021?
a. 50,000 c. 21,000
b. 29,000 d. 25,000
10. What is the amount collected by Cactus Company from the customer on December 31, 2021?
a. 2,150,000 c. 2,160,000
b. 2,224,800 d. 2,214,500

11. If the records of an entity show a balance in a “Due from factor” or “Factor’s holdback” account, it can be reasonably
inferred that accounts receivables have been
a. Pledged c. Factored
b. Assigned d. Discounted

12. A 90-day, 15% interest-bearing note receivable is sold to a bank with recourse after being held for 60 days. The
proceeds are calculated using a 12% interest rate. The amount credited to notes receivable at the date of the
discounting transactions would be
a. The same as the cash proceeds
b. Less than the face value of the note
c. The face value of the note
d. The maturity value of the note

13. When accounts receivable are set aside as collateral for a loan, and the borrower continues to collect the receivables
and applied the collections against the loan, the receivables have been
a. Pledged c. Factored
b. Assigned d. Discounted

14. A 120-day, 15% interest bearing note receivable is discounted to a bank at 18% after being held for 45 days. The
proceeds received from the bank upon discounting would be the
a. Maturity value less discount at 18% for 120 days
b. Maturity value less discount at 18% for 45 days
c. Maturity value less discount at 18% for 75 days
d. Face value less than the discount at 15%

15. Noreen Company provided the following information for 2020:

Accounts receivable – January 1 2,000,000
Credit sales 10,000,000
Collection from customers, excluding the recovery of accounts written off 8,000,000
Accounts written off 100,000
Sales returns 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, 2020?
A. 3,400,000 B. 3,100,000 C. 2,950,000 D. 2,900,000
 16. Mugster Company adopted a new method for estimating doubtful accounts at an amount indicated by aging of
accounts receivable:
Allowance for doubtful accounts – January 1 250,000
Provision for doubtful accounts recorded during the year (2% of credit sales of P10,000,000) 200,000
Accounts written off 205,000
Uncollectible accounts per aging December 31 220,000
What is the year-end adjustment to the allowance for doubtful accounts?
A. 175,000 debit B. 175,000 credit C. 25,000 debit D. 25,000 credit

17. Maps Inc. prepared an aging of its accounts receivable at December 31, 2020 and determined that the amortized
carrying amount of the receivables was P250,000. Additional information is available as follows:
Allowance for bad debts at 1/1/2020 – credit balance 28,000
Accounts written off as uncollectible during 2020 23,000
Accounts receivable at 12/31/2020 270,000
Uncollectible accounts recovered during 2020 5,000
For the year ended December 31, 2020, Maps’ bad debts expense would be
A. 10,000 B. 15,000 C. 20,000 D. 23,000

18. On December 31, 2017, Sunmi Company has an outstanding accounts receivable balance of P130,000,000 broken
down into: 0-60 days outstanding, P50,000,000; 61-120 days outstanding, P40,000,000; 121-365 days outstanding,
P30,000,000; over one year outstanding, P10,000,000. Estimated uncollectible accounts are 2%, 5%, 10% and 25%
respectively. During the current year, Sunmi wrote off P2,500,000 of accounts receivable and recovered P500,000
from accounts previously written off in prior years. On December 31, 2016, Sunmi had an allowance for doubtful
accounts of P5,000,000. What amount should be reported as doubtful accounts expense for the year ended
December 31, 2017?
A. 5,500,000 B. 8,500,000 C. 4,500,000 D. 3,000,000

19. On January 1, 2020 Elisha Company reported Accounts Receivable of P1,300,000, net of allowance for bad debts of
P126,000. During the year, Sales (all on credit) amounted to P4,400,000. Collections from customers including
recoveries of P24,000 totaled P4,550,000 net of discounts amounting to P147,000. Likewise, P9,000 of receivables
were written-off.
Elisha Company uses the aging method in determining bad debts, although Elisha Company provides interim bad debts
provision equal to 0.5% of net credit sales.
The following table shows the corresponding bad debt percentage of Elisha Company’s accounts receivable:
Age AR balance Percentage of Uncollectability
45 days or less 45% 5%
46 – 90 days 30% 10%
over 90 days 25% 15%
The required allowance for bad debts at December 31, 2020 is
A. 91,620 B. 102,960 C. 105,120 D. 116,190

20. Fantastic Baby! Company accounts for cash discount using the net price method. On December 12, 2016, Fantastic
Baby! sold merchandise with an invoice price of P500,000 to customer Fantasy Babe with credit terms of 3/15, n/45.
Fantasy Babe made a full payment on January 5, 2017. How much is the accounts receivable balance on December
31, 2016?
A. 500,000 B. 485,000 C. 450,000 D. 465,000

21. Trade discounts are

A. Not recorded in the accounts; rather they are a means of computing a price
B. Used to avoid frequent changes in catalogues
C. Used to quote different prices for difference quantities purchased
D. All of the above

22. If a company employs the gross method of recoding accounts receivable from customers, then sales discounts taken
should be reported as
A. A deduction from sales in the income statement
B. An item of ‘other income and expense’ in the income statement
C. A deduction from accounts receivable in determining the net realizable value of accounts receivable
D. Sales discounts forfeited in the cost of goods sold section of the income statement
 23. Of the approaches to record cash discounts related to accounts receivable, which is more theoretically correct?
A. Net approach C. Allowance approach
B. Gross approach D. All three approaches are theoretically correct

24. All of the following are required when classifying receivables, except
A. Indicate the receivable classified as current and noncurrent
B. Disclose any receivables pledged as collateral
C. Disclose all significant concentrations of credit risk arising from receivables
D. All of the choices are required when classifying receivables

25. All of the following are problems associated with the valuation of accounts receivable, except
A. Uncollectible accounts C. Cash discounts under the net method
B. Returns D. Allowance granted

26. Trade discounts are

A. Not recorded in the accounts but rather a means of computing a price.
B. Used to avoid frequent changes in catalogs.
C. Used to quote prices for different quantities purchased.
D. All of these describe trade discounts.

27. The normal operating cycle

A. Cannot exceed a period of one year
B. Refers to the seasonal variations experienced by business entities.
C. Should be used to classify asset and liabilities as current if the cycle is less than one year.
D. Measures the time elapsed between cash disbursement for inventory and cash collection of the sales price.

28. 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. Increase the allowance for uncollectible accounts and decrease net income
C. Decrease both accounts receivable and the allowance for uncollectible accounts
D. Decrease accounts receivable and increase the allowance for uncollectible accounts

29. Under the allowance method, entries at the time of collectible of an account previously written off would
A. Increase net income C. Decrease the allowance for doubtful accounts
B. Have no effect on net income D. Have no effect on the allowance for doubtful accounts

30. 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.