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AP Loans & Receivables

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. Your audit of Kaila Corporation for the year ended December 31, 2016 revealed that the Accounts
Receivable account consists of the following:
P3,440,000
Trade accounts receivable (current)
Past due trade accounts 640,000
Uncollectible accounts 128,000
Credit balances in customers accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments at cost
The consignee sold goods costing P96,000 for
P160,000. A 10% commission was charged by the
consignee and remitted the balance to Kaila. The
cash was received in January, 2017. 320,000
Total P4,688,000

The balance of the allowance for doubtful accounts before audit adjustment is a credit of P80,000.
It is estimated that an allowance should be maintained to equal 5% of trade receivables, net of
amount due from the consignee who is bonded. The company has not provided yet for the 2016
bad debt expense.

Based on the above and the result of your audit, determine the adjusted balance of following:

1. Trade accounts receivable

a. P4,080,000 c. P4,464,000
b. P3,440,000 d. P3,584,000

2. Allowance for doubtful accounts

a. P204,000 c. P172,000
b. P216,000 d. P179,200

3. Doubtful accounts expense

a. P264,000 c. P252,000
b. P220,000 d. P227,200

2. The accounts receivable subsidiary ledger of Jerome Corporation shows the following information:

Dec. 31, 2016 Invoice

Customer Account balance Date Amount
Maybe, Inc. P140,720 12/06/2016 P56,000
11/29/2016 84,720
Perhaps Co. 83,680 09/27/2016 48,000
08/20/2016 35,680
Pwede Corp. 122,400 12/08/2016 80,000
10/25/2016 42,400
Perchance Co. 180,560 11/17/2016 92,560
10/09/2016 88,000
Possibly Co. 126,400 12/12/2016 76,800
12/02/2016 49,600
Luck, Inc. 69,600 09/12/2016 69,600
Total P723,360 P723,360

The estimated bad debt rates below are based on the Corporations receivable collection
experience.

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Age of accounts Rate

0 30 days 1%
31 60 days 1.5%
61 90 days 3%
91 120 days 10%
Over 120 days 50%

The Allowance for Doubtful Accounts had a credit balance of P14,000 on December 31, 2016,
before adjustment.

Based on the foregoing, answer the following:

1. How much is the adjusted balance of the allowance for doubtful accounts as of December 31,
2016?
a. P52,795 b. P24,795 c. P38,795 d. P14,000

2. The necessary adjusting journal entry to adjust the allowance for doubtful accounts as of
December 31, 2016 would include:
a. No adjusting journal entry is necessary.
b. A debit to retained earnings of P24,795.
c. A debit to doubtful accounts expense P38,795.
d. A credit to allowance for doubtful accounts of P24,795.

3. In your audit of Joseph Co., you noted that the companys statement of financial position shows the
accounts receivable balance at December 31, 2013 as follows:

Accounts receivable P3,600,000

Allowance for doubtful accounts 72,000
P3,528,000

During 2016, transactions relating to the accounts were as follows:

Sales on account, P38,400,000.

Cash received from collection of current receivable totaled P31,360,000, after discount of
P640,000 were allowed for prompt payment.

Customers accounts of P160,000 were ascertained to be worthless and were written off.

Bad accounts previously written off prior to 2016 amounting to P40,000 were recovered.

The company decided to provide P184,000 for doubtful accounts by journal entry at the end of
the year.

Accounts receivable of P5,600,000 have been pledged to a local bank on a loan of P3,200,000.
Collections of P1,200,000 were made on these receivables (not included in the collections
previously given) and applied as partial payment to the loan.

Based on the above and the result of your audit, answer the following:

1. The accounts receivable as of December 31, 2016 is

a. P8,680,000 c. P4,240,000
b. P9,840,000 d. P8,640,000

2. The allowance for doubtful accounts as of December 31, 2016 is

a. P 8,000 c. P184,000
b. P136,000 d. P176,000

3. The net realizable value of accounts receivable as of December 31, 2016 is

a. P8,544,000 c. P8,504,000
b. P8,456,000 d. P4,104,000
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4. If receivables are hypothecated against borrowings, the amount of receivables involved should
be
a. Disclosed in the statements or notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face value
and the amount of borrowings

4. The financial statements of Bulls Corporation included the following:

December 31, 2015 December 31, 2016

Accounts Receivable P 735,000
Allowance for doubtful accounts 16,200
Sales on account P 4,500,000
Cash collected from customers 4,200,000

Among the cash collections was the full recovery of a P16,000 receivable from Robert Jawo, a
customer whose account had been written off as worthless late in 2015.

During 2016, it was necessary to write off uncollectible customers accounts totalling P20,200.

On December 1, 2016, a customer settled his account by issuing to Bulls Corporation a 9% six-
month note for P250,000.

At December 31, 2016, the accounts receivable included P100,800 past due accounts. After careful
study of all past due accounts, the management estimated the probable loss contained therein was
10%. In addition, 2% of the current accounts receivable might prove uncollectible.

1. What is the balance of Accounts Receivable as of Dec. 31, 2016?

a. P780,800
b. P801,000
c. P821,200
d. P1,051,000

2. What is the amount of the current accounts receivable that might prove to be uncollectible?
a. P13,600
b. P14,004
c. P14,408
d. P19,004

3. What is the balance of the allowance for uncollectible accounts before adjustments on December
31, 2016?
a. P4,000
b. P12,000
c. P12,200
d. P32,200

4. What is the balance of the allowance for uncollectible accounts after all necessary adjusting
entries on December 31, 2016?
a. P10,080
b. P12,084
c. P14,004
d. P23,680

5. Presented below is information related to the Accounts Receivable accounts of Ramil, Inc. during
the current year 2016.

a. An aging schedule of the accounts receivable as of December 31, 2016 is as follows:

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% to be Applied After Correction

Age Net Debit Balance
Made
Under 60 days P175,000 1%
61 90 days 80,000 3%
91 120 days 42,000 6%
Over 120 days 24,000 P4,200 definitely uncollectible
remainder estimated 25%
uncollectible

b. The Accounts Receivable control account has a debit balance of P321,000 on December 31,
2016.

c. Two entries were made in the Uncollectible Accounts Expense account during the year: (1) a
debit on December 31 for the amount credited to Allowance for Uncollectible Accounts because of a
bankruptcy. The P2,740 write off of receivables is related to the 91-120 day category.

d. The Allowance for Uncollectible Accounts is as follows for 2016:

Date Particulars Debit Credit Balance

Jan. 1 Beginning balance 8,750
Nov. 3 Write off P2,740 6,010
Dec. 31 Provision (5% of P16,050 22,060
P321,000)

e. A credit balance exists in the Accounts Receivable (61 90 days) of P4,800, which represents an
advance on a sales contract.

1. Compute the correct balances of Accounts Receivable at December 31, 2016.

a.)318, 860 b.)314, 060 c.) 325, 800 d.) 323, 060

2. Compute the correct amount of Uncollectible Accounts Expense for the year 2016.
a.)16, 050 b.)9,789 c.) 7, 049 d.) 16, 831

6. On January 2, 2015, a tract of land that originally cost P800,000 was sold by Angel
CORPORATION. The company received a P1,200,000 note as payment. It bears interest rate of
4% and is payable in 3 annual installments of P400,000 plus interest on the outstanding balance.
The prevailing rate of interest for a note of this type is 10%. The present value table shows the
following present value factors of 1 at 10%:

Present value factor of 1 for 3 periods 0.75132

Present value factor of 1 for 2 periods 0.82645
Present value factor of 1 for 1 period 0.90909
Present value of an ordinary annuity of 1 for 3 periods 2.48685

1. The gain on sale of land on January 2, 2015 is:

a. P 194,740 b. P 276,847 c. P 290,740 d. P 400,000

2. The interest income on the note receivable for the year ended December 31, 2015 using
effective interest method is:
a. P 120,000 b. P 109,074 c. P 107,685 d. P 99,474

3. How much cash will MYLENE CORPORATION received from notes receivable?
a. P 1,076,847 b. P 1,200,000 c. P 1,296,000 d. P 1,476,847

7. Carla Received from a customer a one-year, P375,000 note bearing annual interest of 8%.After
holding the note for six months, Carla discounted the note at I-Bank at an effective interest rate
of 10%.

Q1. How much should Carla receive from the bank?

a. 371,428.50
b. 384,750.00 4
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c. 392,857.50
d. 405,000.00

Q2. If the discounting is treated as a sale, what amount of loss on discounting should
Carla recognize?
a. 0
b. 5,250
c. 9,750
d. 20,250

8. Cher Company discounted with recourse a note at the bank, On July 31 of the current year, at
discount rate of 13%. The note was received from the customer on July 1, 2016, is for 60 days, has
a face value of P5, 500,000 and carries an interest rate of 10%. The customer paid the note to the
bank on the date of maturity. Given that the discounting is accounted for a secured borrowing.

1. What amount of interest expense should be recognized on July 31, 2016?

a. 300, 175
b. 235, 895
c. 135, 895
d. 532, 598

2. What should be the amount to be recognized as the net proceeds?

a. 5,500,000
b. 5,545, 833.33
c. 5,409, 937.50
d. 5, 000, 000

9. Ramil Company assigned specific accounts receivable totaling P3, 100, 000 as collateral on a P2,
500, 000, 12% note from a certain bank on December 1, 2016,. The entity will continue to collect
the assigned accounts receivable. In addition to the interest on the note, the bank also charged a
5% finance charge deducted in advance on the P2, 500, 000 value of the note. The December
collections of assigned accounts receivable amounted to P1, 000, 000 less cash discounts of P50,
000. On December 31, 2016, the entity remitted the collections to the bank in payment for the
interest accrued on December 31, 2016 and the note payable.

i. What is the carrying amount of note on December 31, 2016?

a. 1, 550, 000
b. 1, 575, 000
c. 1, 600, 000
d. 1, 757, 000

ii. What amount should be disclosed as the equity of Ramil Company in assigned accounts on
December 31, 2016?
a. 425, 000
b. 475, 000
c. 495, 000
d. 525, 000

iii. What amount of cash was received from the assignment of accounts receivable on December 1,
2016?
a. 2, 000, 000
b. 2, 150, 0000
c. 2, 375, 0000
d. 3, 100, 000

10. Omar Co. required additional cash for its operation and used accounts receivable to raise such
needed cash, as follows:

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On December 1, 2016 Omar Company assigned on a non-notification basis accounts receivable

of P5,000,000 to a bank in consideration for a loan of 90% of the receivables less a 5% service
fee on the accounts assigned. Omar signed a note for the bank loan. On December 31, 2016,
Omar collected assigned accounts of P3,000,000 less discount of P200,000. Omar remitted the
collections to the bank in partial payment for the loan. The bank applied first the collection to
the interest and the balance to the principal. The agreed interest is 1% per month on the loan
balance.

Omar Co. sold P1,550,000 of accounts receivable for P1,340,000. The receivables had a
carrying amount of P1,470,000 and were sold outright on a nonrecourse basis.

On June 30, 2016, Omar Co. discounted at a bank a customers P600,000, 6-month, 10% note
receivable dated April 30, 2016. The bank discounted the note at 12% on the same date.

Based on the above and the result of your audit, answer the following:

1. In its December 31, 2016 statement of financial position, Omar should report note payable as a
current liability at
a. P1,745,000 c. P1,545,000
b. P2,250,000 d. P1,700,000
2. Omar Companys equity in the assigned accounts receivable as of December 31, 2016 is
a. P255,000 c. P455,000
b. P300,000 d. P 0

3. The entry to record the sale of accounts receivable would include

a. A debit to Finance Charge of P210,000.
b. A debit to Allowance for Doubtful Accounts of P80,000.
c. A credit to Accounts Receivable of P1,470,000.
d. A credit to Notes Payable of P1,550,000.

4. The proceeds from the note receivable discounted on June 30, 2016 is
a. P564,000 c. P604,800
b. P617,400 d. P576,000

11. The Cleo Company included the following in its notes receivable as of December 31, 2016:

Note receivable from sale of land P 880,000

Note receivable from consultation 1,200,000
Note receivable from sale of equipment 1,600,000

In connection with your audit, you were able to gather the following transactions during 2016 and
other information pertaining to the companys notes receivable:

On January 1, 2016, Cleo Company sold a tract of land. The land, purchased 10 years ago,
was carried on Cleo Companys books at a value of P500,000. Cleo received a noninterest-
bearing note for P880,000. The note is due on December 31, 2017. There is no readily
available market value for the land, but the current market rate of interest for comparable notes
is 10%.

On January 1, 2016, Cleo Company finished consultation services and accepted in exchange a
promissory note with a face value of P1,200,000, a due date of December 31, 2018, and a
stated rate of 5%, with interest receivable at the end of each year. The fair value of the services
is not readily determinable and the note is not readily marketable. Under the circumstances, the
note is considered to have an appropriate imputed rate of interest of 10%.

On January 1, 2016, Cleo Company sold equipment with a carrying amount of P1,600,000 to X
Company. As payment, X gave Cleo Company a P2,400,000 note. The note bears an interest
rate of 4% and is to be repaid in three annual installments of P800,000 (plus interest on the
outstanding balance). The first payment was received on December 31, 2016. The market
price of the equipment is not reliably determinable. The prevailing rate of interest for notes of
this type is 14%.
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Based on the above and the result of your audit, answer the following: (Round off present value
factors to four decimal places and final answers to nearest hundred)

1. The consultation service fee revenue that should be recognized in 2016 is

a. P1,050,800 c. P 901,600
b. P1,095,800 d. P1,200,000

2. The gain on sale of equipment that should be recognized in 2016 is

a. P331,600 c. P412,400
b. P257,280 d. P800,000

3. The noncurrent notes receivable as of December 31, 2016 is

a. P2,605,706 c. P2,494,000
b. P1,825,800 d. P2,625,700

4. The current portion of long-term notes receivable as of December 31, 2016 is

a. P1,600,000 c. P1,468,200
b. P1,680,000 d. P 800,000

5. The interest income to be recognized in 2016 is

a. P464,000 c. P459,500
b. P435,800 d. P156,000

12. Alex Company has the following transactions in 2016 involving notes receivable:

May 1 Received a P1,000,000, 90-day, 12% interest bearing note

from A Company in settlement of account.

1 Received a P1,500,000, six-month, 12% interest bearing

note from B Company in settlement of account.

Jul. 30 A Company defaulted on the P1,000,000 note.

Aug. 1 Discounted the B Company note at a bank at 15%.

Sep. 1 Received a one-year noninterest bearing note from C

Company in settlement of a P600,000 account receivable.
The face value of the note was P660,000.

28 Collected the defaulted A Company note plus accrued

interest at 12% per annum on the total amount due.

Oct. 1 Received a P2,500,000, 90-day note from D Company. The

note is for the payment goods purchased and bears interest
at 12%.

Nov. 1 B Company defaulted on the P1,500,000 note. Alex

Company paid the bank the total amount due plus P60,000
for protest fee and other bank charges.

Dec. 30 Collected D Company note in full.

31 Collected from B Company in full including interest on the

total amount due at 12% since default date.

Based on the above and the result of your audit, answer the following:

1. The proceeds from discounted B Company note on August 1, 2016 is

a. P1,530,375 c. P1,542,300
b. P1,487,062 d. P1,000,000

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2. The amount collected on September 28, 2016 on the defaulted A Company note is
a. P1,030,000 c. P1,050,000
b. P1,050,600 d. P1,081,500

3. The amount collected on December 31, 2016 on defaulted B Company note is

a. P1,683,000 c. P1,681,800
b. P1,650,000 d. P1,680,000

4. The interest income to be recognized in 2016 related to these transactions is

a. P268,600 c. P223,600
b. P238,780 d. P193,600

13. Scotia Bank granted a 10-year loan to Mija Company in the amount of P1,500,000 with a stated
interest rate of 6%. Payments are due monthly and are computed to be P16,650. Scotia Bank
incurred P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In
addition, Scotia Bank charged Mija Company a 4-point non-refundable loan origination fee.

i. What is the initial carrying amount of the loan receivable on the part of Scotia Bank?
a. 1,520,000
b. 1,500,000
c. 1,480,000
d. 1,580,000

ii. What is the initial carrying amount of the loan payable on the part of Mija Company?
a. 1,520,000
b. 1,500,000
c. 1,480,000
d. 1,440,000

14. Montreal Bank granted a loan to a borrower on January 1, 2016. The interest rate on the loan is
10% payable annually starting December 31, 2016. The loan matures in five years on December
31, 2020. The data related to the said loan are:

Principal Amount 8,000,000

Origination fee received from the borrower 1,250,000
Direct organization cost incurred 50,000

The effective rate on the loan after considering the direct organization cost incurred and the
origination fee is 15%.

1. What is the carrying amount of the loan receivable on January 1, 2016?

a. 3,544,000
b. 4,600,000
c. 5,504,000
d. 6,800,000

2. What is the interest income for 2016?

a. 1,709,000
b. 1,907,000
c. 1,020,000
d. 2,000,000

3. What is the carrying amount of the loan receivable on December 31, 2016?
a. 7,020,000
b. 8,000,000
c. 6,200,000
d. 5,100,000

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15. Scotia Bank loaned P5,000,000 to MIJA Company on January 1, 2013. The terms of the loan
require principal payments of P1,000,000 each year for 5 years plus interest at 8%. The first
principal and interest payment is due on January 1, 2014. MIJA Company made the required
payments during 2014 and 2015. However, during 2015 MIJA Company began to experience
financial difficulties, requiring Scotia to reassess the collectibility of the loan. On December 31,
2015, Scotia Bank determines that the remaining principal payment will be collected but the
collection of the interest is unlikely. The present value of 1 at 8% is as follows:
For one period 0.93
For two periods 0.86
For three periods 0.79
Q1. What is the loan impairment loss on December 31, 2015?
a. 420,000
b. 210,000
c. 630,000
d. 0

Q2. What is the interest income to be reported by Scotia Bank in 2016?

a. 223,200
b. 143,200
c. 240,000
d. 0

16. You are engaged to perform an audit of the accounts of the Montreal CORPORATION for the year
ended December 31, 2015, and have observed the taking of the physical inventory of the company
on December 27, 2015. Only merchandise shipped by the Montreal Corporation to customers up to
and including December 27, 2015 have been removed or excluded from inventory. The inventory
as determined by physical inventory count has been recorded on the books by the companys
controller. No perpetual inventory records are maintained. All sales are made on an FOB shipping
point basis.

The following lists of sales invoices are entered in the sales books for the months of December
2015 and January 2016, respectively.

Sales Invoices
Date Amount Date Shipped

December 2015 (a) 12/23/15 P 25,000 12/31/15

(b) 12/27/15 18,000 12/27/15
(c) 12/30/15 30,000 01/05/16
(d) 12/22/15 12,000 01/08/16
(e) 12/28/15 16,000 12/29/15
(f) 12/03/15 8,000 12/05/15
(g) 12/31/15 20,000 01/07/16
(h) 12/31/15 14,000 12/31/15

January 2016 (i) 12/31/15 7,500 12/29/15

(j) 12/27/15 11,000 01/04/16
(k) 01/08/16 9,000 01/09/16
(l) 01/10/16 5,000 12/31/15

1. How much sales for month of December 2015 were erroneously recorded in January 2016?
a. P 7,500 b. P 12,500 c. P 18,500 d. P 20,000

2. How much sales for the month of January 2016 were erroneously recorded in December 2015?
a. Zero b. P 12,500 c. P 20,000 d. P 62,000

3. How much is the correct amount of sales for the month ended December 31, 2015?
a. P 143,000 b. P 155,500 c. P 93,500 d. P 81,000

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17. On December 31, 2016, Apple Company reported accounts receivable as follows:

Banana Company 450,000

Mango Company 1,680,000
Orange Company 2,100,000
Grapes Company ` 3,200,000
Other accounts receivable not individually significant 6,500,000

Apple Company determined that Banana Company receivable is impaired by 50,000 and Grapes
Company Receivable is totally impaired. Mango Company and Orange Company are not
considered impaired. Apple Company also determined that the composite rate of 5% is appropriate
to measure impairment on all other accounts receivable.

What is the total impairment loss of accounts receivable ?

a. 2,550,000
b. 2,260,000
c. 3,764,000
d. 3,275,000

18. During your audit of the Joshtin COMPANY for the calendar year 2016, you find the following
accounts:
NOTES RECEIVABLE
Sept. 1 Samson, 12%, due in 3 mos. 36,000 36,000
Nov. 1 Hazel, 15%, due in 6 mos. 90,000 126,000
Nov. 1 Salazar, no interest, due in one
year 75,000 201,000
Nov. 30 Rosa, Co. 12%, due in 13 mos. 15,000 216,000
Dec. 1 Rona, 15%, due in 15 mos. 36,000 252,000
Dec. 2 Anito, President, 18%, due in 3
mos. 18,000 270,000

NOTES RECEIVABLE DISCOUNTED

Sept. 1 Samson note, discounted at 15% 36,000 36,000
Nov. 1 Salazar note, discounted at 15% 75,000 111,000

INTEREST EXPENSE
Sept. 1 Samson note 310.50 310.50
Nov. 1 Salazar note 11,250.00 11,560.50

All notes are trade notes receivable unless otherwise specified. The Samson note was paid
December31, 2016. Interest income is credited only upon receipt of cash.

1. The accrued interest income at December 31, 2016 is:

a. P 2,748 b. P 3,018 c. P 3,120 d. P 4,200

2. The interest expense at December 31, 2016 is:

a. P 1,875.00 b. P 2,185.50 c. P 4,060.50 d. P 11,560.50

3. The Notes Receivable at December 31, 2016 is:

a. P 141,000 b. P 159,000 c. P 216,000 d. P 252,000

4. The Notes Receivable discounted at December 31, 2016 is:

a. P 63,750 b. P 73,125 c. P 75,000 d. P 111,000

5. How much is the proceeds in the discounting of notes receivable for the year?
a. P 99,439.50 b. P 100,060.50 c. P 111,000.00 d. P 111,310.50

19. Joshtin Company factored 5,000,000 of accounts receivable to a finance entity on October 20,
2016. Control was surrendered by Joshtin Company. The factor assessed a fee of 5% and retained
holdback equal to 8% of the accounts receivable. In addition, the factor charged 20% interest
computed on a weighted average time to maturity of the accounts receivable of 60 days.
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1. What is the amount of cash initially received from the factoring?

a. 4,500,000
b. 5,050,000
c. 6,985,520
d. 5,814,384

2. What is the cost of factoring if all of the accounts are collected?

a. 127,680
b. 360,780
c. 414,384
d. 223,200

20. Kaila Company sold 7,900,000 in accounts receivable for cash of 7,000,000. The factor withheld
10% of the cash proceeds to allow for possible customer returns and other adjustments. An
allowance for bad debts of 500,000 had previously been established by the entity in relation to this
accounts.

What is the loss on factoring that should be recognized?

a. 400,000
b. 390,000
c. 500,000
d. 420,000

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