INTERMEDIATE ACCOUNTING 1 — REVIEWER

BACHELOR OF SCIENCE IN ACCOUNTANCY 2-1

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES — TAGUIG
PROF. U.C. VALLADOLID

MODULE 2 — RECEIVABLES
THEORIES

1. Receivables from officers, employees, or affiliated companies should be reported in the statement of
financial position as

a. Non-current assets only

b. Offset to capital
c. Current assets if collectible within twelve months
d. Trade notes and accounts receivable if they otherwise qualify as current assets

2. Which of the following shall be taken into consideration when measuring and recognizing impairment loss
on receivables?

I. Past experience on the collectability of the receivables

II. Present condition of the debtor, including the present economic environment
III. Future expectations based on information that are available without undue cost and effort.

a. I only c. I, II, and III

b. II only d. III only

3. Which of the following is not required disclosure for loans and receivables?
a. The criteria for recognition in basis of measurement applied.
b. Material items of income and expense and gains and losses resulting from receivables
c. The names of the debtors who defaulted on the payment of their loans or accounts.
d. The nature and amount of impairment loss recognized in profit or loss

4. Which of the following statements is true?

a. Sales revenue is increased by a recovery of an account previously written off
b. It is appropriate to measure the impairment on pc bible based on recognized sales or other revenues
c. A non interest bearing promissory note is measured on the statement of financial position at face value
less the amount of an amortize discount
d. When individual customers accounts have credit balances of material amounts, these amounts must be
deducted from the debit balance in other customers' accounts in the statement of financial position

5. The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made when
a. A customer pays an account balance.
 b. A customer defaults on the account.
c. A previously defaulted customer pays the balance.
d. Estimated uncollectible accounts are too low.

6. Nontrade receivables are classified as current assets only if reasonably expected to be realized in cash
a. Within one year or within the operating cycle, whichever is shorter.
b. Within one year or within the operating cycle, whichever is longer.
c. Within the normal operating cycle.
d. Within one year, the length of the operating cycle notwithstanding

7. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income
measurement is the allowance method based on
a. Aging of accounts receivable c. Gross sales
b. Direct writeoff d. Credit sales less returns and allowances

8. Why would an entity factor accounts receivable?

a. To improve the quality of credit granting process
b. To limit its legal liability
c. To accelerate access to amount collected
d. To comply with customer agreements

9. Which of the following statements is not true?

a. Claims against defendants under suit is considered as a non-trade receivable.
b. Receivables are initially recognized at fair value plus transaction cost.
c. Notes receivable are receivables in the form of unconditional written promises.
d. There is only one method of estimating doubtful accounts.

10. The category “trade receivables” includes

a. Advances to officers and employees
b. Income tax refunds receivables
c. Receivables from customers
d. Claims against insurance companies for casualties sustained

11. Receivables may be classified as all of the following except:

a. Trade receivables or Non-trade receivables c. Current or Noncurrent
b. Restricted or Unrestricted d. Accounts receivable or Notes receivable

12. Which of the following methods of determining annual bad debts expense best achieve the matching concept?
a. Percentage of sales c. Percentage of ending accounts receivable
b. Percentage of average accounts receivable d. Direct write-off

13. Accounts receivable is also called as :

a. Retail debtors b. Customer's account
 c. Sale's account d. Inventory account

14. It is a term wherein the ownership of the goods purchased is vested in the buyer upon receipt thereof.
a. Freight Collect c. FOB shipping point
b. Freight prepaid d. FOB destination
15. Why does GAAP require the use of an allowance method ?
a. Because it can sustain a bad debt loss.
b. Because the discounts can be charged normally to the sales account.
c. Because it is simple to apply.
d. Because it follows a matching principle.

16. This method is not permitted under IFRS.

a. Net method c. Direct written off method
b. Allowance method d. Gross method

17. The following are example of non-trade receivable except

a. Advances to subsidiaries
b. Dividends and interest receivable
c. Claims against governmental bodies for tax refunds
d. Claims against customers for unreturnable items

18. It is similar to notes receivable in that it is also a claim supported by a promise to pay a certain amount of money
at a specific future date, usually in the form of a promissory note.
a. Loans receivable c. Trade receivable
b. Notes payable d. Other receivablE

19. Which of the following is true about short-term receivable?

a. The fair value of a short-term receivable will never be equal to its face amount.
b. Short-term receivables initial measurement is fair value plus transaction cost.
c. If the transaction contains a significant financing component, the fair value of the short-term receivable is
equal to its future value.
d. Short-term receivable matures in beyond 12 months.

20. It may be supported by oral or informal promises to pay. These are not supported by formal promissory notes.
a. Advances c. Accounts receivable
b. Loans receivable d. Claims receivable

21. Trade receivables are classified as current assets if these are reasonably expected to be collected.
a. Within one year
b. Within the normal operating cycle
c. Within one year o within the operating cycle, whichever is shorter
d. Within one year or within the operating cycle, whichever is longer

22. Which statement is true in relation to presentation of receivables in the statement of financial position?
a. Trade receivables and nontrade receivables must be shown separately
b. Nontrade receivables are presented as noncurrent
c. Trade accounts receivables and trade notes receivables must be presented separately
 d. trade receivables and nontrade receivables which are currently collectible may be presented as one line
item called “trade and other receivables”

23. Credits balances in accounts receivable are classified as

a. Current liabilities c. Long term liabilities
b. Part of accounts payable d. Deduction from accounts receivable

24. Where the operating cycle extends beyond one year because of normal credits terms as in the case of
installment sales of household appliances
a. It is proper to classify the entire receivables as current assets with disclosure of the amount not realizable
within one year, if material.
b. The entire receivables are shown as noncurrent assets.
c. The portion due in one year is shown as current and the balance as noncurrent.
d. The receivables are not recognized

25. A company that receives an interest-bearing note receivable will

a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.

26. Recognition of a recourse liability will make a loss on sale of receivables larger than it would otherwise have
been.
a. The statement is True
b. The statement is False
c. The statement is neither True or False
d. None of the above

27. When a note receivable is dishonored, .

a. interest revenue is never recorded.
b. Bad debt expense is recorded.
c. the maturity value of the note is written off.
d. Accounts Receivable is debited if eventual collection is expected.

28. The receivables turnover ratio is computed by dividing net sales by the ending net receivables.
a. The statement is True
b. The statement is False
c. The statement is neither True or False
d. None of the above

29. An entity recognizes trade receivables simultaneously with the related , either from selling goods or
rendering services.
 a. Accounts receivable c. Revenues
b. Non trade receivables d. Equity

30. An entity recognizes the cash discounts based on the method of accounting adopted by the company for
sales and the related accounts receivable. All the methods are as follows, except:
a. Allowance Method c. Gross Price Method
b. Direct Write-Off Method d. Net Price Method

31. Which method of accounting for cash discounts is used when an entity records the accounts receivable at the
gross sales price, the sales revenue at the net amount, and the available cash discount using the valuation
account, Allowance for Sales Discounts?
a. Gross Price Method c. Cash Discount Method
b. Net Price Method d. Allowance Method

32. Which form of receivables financing is known as the "general assignment of accounts receivable," where
all receivables are used as collateral for a loan?
a. Pledge of Accounts Receivable c. Factoring
b. Assignment of Accounts Receivable d. Discounting of Notes Receivable

33. Receivables from subsidiaries and affiliates, if significant should be classified as:
a. Current assets
b. Noncurrent assets
c. Either as noncurrent or current depending on the expectation of realizing them within one year over one
year.
d. Neither noncurrent or current assets

34. In the case of long-term installments receivable (real estate installment sales) where a major portion of
the receivables will be collected beyond the normal operating cycle
a. The entire receivables are classified as noncurrent
b. The entire receivables are classified as current with disclosure of the amount not currently due
c. The entire receivables are classified as current without disclosure of the amount not currently due
d. Only the portion currently due is classified as current and the balance as noncurrent

35. Receivables denominated in a foreign currency should be

a. Translated to local currency using the exchange rate at the time the receivables arise
b. Translated to local currency using the exchange rate at balance sheet date.
c. Shown at face value of the foreign currency
d. Translated to local currency using the exchange rate when the balance sheet is issued.

36. Installment receivable arising from sales of household appliances should be classified as:
a. Current assets
b. Noncurrent assets
c. Current assets; however, the amount not realizable within one year should be disclosed, if material
 d. None of these

37. Trade receivables are classified as current assets if reasonably expected to be collected
a. Within one year.
b. Within the normal operating cycle.
c. Within one year or within the operating cycle, whichever is shorter.
d. Within one year or within the operating cycle, whichever is longer.

38. Credit balances in accounts receivable should be classified

as
c. Noncurrent liability
a. Current liability
d. Deduction from accounts receivable
b. Part of accounts payable

39. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of
an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income

40. Long-term notes receivables which normally bears interest or an interest which is unreasonably low shall
be recognized initially at
a. Face value c. Maturity value
b. Discounted value d. Current value

41. Which is not permitted in accounting for uncollectible accounts receivable?

a. Percentage of accounts receivable c. Direct writeoff method
b. Percentage of sales d. Aging of accounts receivable

42. Which method of determining bad debt expense does not match expense and revenue?
a. Charging bad debts with a percentage of sales under the allowance method
b. Charging bad debt with a percentage of accounts receivable under the allowance method
c. Charging bad debts with an amount derived from aging the accounts receivable under the allowance
method
d. Charging bad debts as accounts are written off as uncollectible

43. Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of
accounting theory?
a. Relevance c. Substance over form
b. Verifiability d. Form over substance

44. Note receivable discounted with recourse should be

a. Excluded from total receivables without disclosure
 b. Excluded from total receivables with disclosure
c. Included in total receivables without disclosure
d. Included in total receivables with disclosure

Answer Key: (Theories)

1. C
2. C
3. C
4. C
5. C
6. D
7. A
8. C
9. D
10. C
11. B
12. A
13. B
14. D
15. D
16. C
17. D
18. A
19. B
20. C
21. D
22. D
23. A
24. A
25. C
26. A
27. D
28. B
29. C
30. B
31. D
32. A
33. C
34. D
35. B
36. C
37. D
38. A
39. D
40. B
41. C
42. D
43. C
44. B