INSTRUCTIONS: Shade the letter of your choice on the answer sheet provided.

If your answer is not in

the choices shade “E”.

1. Noisy Boy Company had the following information relating to its accounts receivable for the
year 2018:
Accounts receivable, January 1 P 1,200,000
Sales on credit 5,300,000
Collections from customers (including P40,000
recovery of accounts written off) 4,750,000
Allowance for doubtful accounts, January 1 75,000
Accounts written off as worthless 60,000

Noisy Boy uses 2% of sales to estimate its uncollectible accounts. The balance of the accounts
receivable at December 31, 2018 before considering the allowance for doubtful accounts is

A. P1,584,000
B. P1,624,000
C. P1,690,000
D. P1,730,000

2. The following information relates to Smasher Company’s accounts receivable for 2018:
Accounts receivable, 1/1/18 P 650,000
Credit sales for 2018 2,700,000
Sales returns for 2018 75,000
Accounts written off during 2018 40,000
Collections from customers during 2018 2,150,000
Allowance for doubtful accounts 1/1/18 90,000

The net realizable value of accounts receivable at December 31, 2018 amounted to P975,000.
The uncollectible accounts expense of Smasher Company for 2018 is

A. P20,000
B. P50,000
C. P60,000
D. P70,000

Use the following information for questions 3-4

CERTS Bank granted a 8%, 3-year P6,000,000 loan to Ariel Company on January 1, 2018. The
interest on the loan is payable every December 31. CERTS bank incurred P520,600 of direct
origination cost but an origination fee of P200,000 was charged against Ariel Company.

3. What is the carrying value of the loan on December 31, 2019 in CERTS Bank’s accounting books?
A. P6,219,836
B. P6,320,600
C. P6,000,000
D. P6,113,026

4. What is the interest income to be reported by CERTS Bank’s in profit or loss for the year 2018?
A. P379,236
B. P442,442
C. P480,000
D. P505,648

5. Davao Finance granted a 10%, 2-year P5,000,000 loan to Cebu Company on January 2018. The
interest is payable every December 31 for each year during the term of the contract. Davao
Finance incurred an origination cost of P328,326 but charge Cebu Company P150,000 as
origination fee. The effective rate is now 8% after considering the origination costs and
 origination fee. Due to financial difficulty, Cebu Company was unable to pay the interest on
December 31, 2018. Davao Finance has now considered that the loan to Cebu Company is
now impaired. Reliable estimate shows that the projected cash flows from the loan are as
follows: P2,000,000 on December 31, 2019 and P3,000,000 on December 31, 2016. What amount
of impairment loss on the loan should Davao Finance recognize on December 31, 2018?
A. None
B. P668,723
C. P373,371
D. P462,963

6. Orange, Inc. assigns P1,500,000 of its accounts receivables as collateral for a P1 million loan with
a bank. The bank assesses a 3% finance fee and charges interest on the note at 6%. What would
be the journal entry to record this transaction?
A. Debit Cash for P970,000, debit Finance charge for P30,000 and credit Notes Payable for
P1,000,000
B. Debit Cash for P970,000, debit Finance charge for P30,000 and credit Accounts Receivable
for P1,000,000
C. Debit Cash for P970,000, debit Finance charge for P30,000, debit Due from bank for P500,000
and credit Accounts Receivable for P1,500,000
D. Debit Cash for P910,000, debit Finance charge for P90,000 and credit Notes Payable for
P1,000,000

7. On December 1, 2018, Alex Company assigned on a nonnotification basis accounts receivables

of P3,000,000 to a bank in consideration for a loan of 80% of the receivables less a 5% service
fee on the accounts assigned. The interest rate of the loan is 12% per annum. The company
collected assigned accounts of P2,000,000 and 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 interest rate is 1% per month on the outstanding balance of the loan.
In its December 31,2018 , the statement of financial position, what amount of note payable
should Alex company report as current liability?
A. None
B. P424,000
C. P400,000
D. P1,024,000

8. On October 31, 2018, Tess Company engaged in the following transactions:

 Obtained a P500,000, six-month loan from BPI Bank, discounted at 12%. The company pledge
P500,000 of accounts receivable at security for the loan.
 Factored P1,000,000 of accounts receivable without recourse on a non-notification basis
with Help 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. P1,350,000
B. P1,470,000
C. P1,380,000
D. P1,320,000

9. On January 1, 2018, Santayana Company sold a special machine that had a list price of
P900,000. The buyer paid P100,000 cash and signed an P800,000 note. The note specified that it
would be paid off in four equal annual payments of P274,565 each starting on December 31,
2018. The carrying amount of the receivable on December 31, 2019 is
A. P452,111
B. P701,435
C. P637,435
D. P725,435
10. Grey Company holds an overdue note receivable of 800,000 plus recorded accrued interest of
P64,000. The effective interest rate is 8%. As a result of a court-imposed settlement on December
31, 2018, Grey agreed to the following restructuring arrangement:
 Reduced the principal obligation to 600,000.
 Forgave the P64,000 of accrued interest.
 Extended the maturity date to December 31, 2020.
 Annual interest of P40,000 is to be paid on December 31, 2019 and 2020.

The present value of the interest and principal payments to be received by Grey Company
discounted for two years at 8% is P585,734. For the year ended December 31, 2018, Grey would
recognize impairment loss of

A. P278,266
B. P214,266
C. P198,266
D. P54,266

11. During your review of records of Yoko Corporation for the year 2018, you noted that Yoko sold
a machine with a carrying amount of P640,000 (cost is P1,600,000) on June 30, 2018. Yoko
received an P800,000 non-interest bearing note due in 3 years. There is no established market
value for the machine. The prevailing interest rate for a note of this type is 12%. Yoko recorded
the transaction by debiting Note Receivable for P800,000 and crediting Machinery for P640,000
and Gain on sale of Machine for the difference. Because of this, Yoko’s profit for the year ended
December 31, 2018 had been overstated by
A. P196,394
B. P125,834
C. P162,227
D. P 55,274

12. Silencer, Inc. estimates its doubtful accounts by aging its accounts receivable. The aging
schedule of accounts receivable at December 31, 2018 is presented below:
Age of accounts Amounts
0-30 days P1,264,800
31-60 days 691,500
61-90 days 288,600
91-120 days 114,975
Over 120 days ___59,100
P2,418,975

Silencer, Inc.’s uncollectible accounts experience for the past 5 years are summarized in the
following schedule:

A/R Over
Balance 0-30 31-60 61-90 91-120 120
Year Dec.31 Days Days Days Days Days
2017 P1,968750 0.30% 1.80% 12% 38% 65%
2016 1,500,000 0.50% 1.60% 11% 41% 70%
2015 697,500 0.20% 1.50% 9% 50% 69%
2014 1,224,000 0.40% 1.70% 10.20% 47% 81%
2013 1,865,500 0.90% 2.00% 9.70% 33% 95%

The balance of the allowance for doubtful accounts at December 31, 2018 before adjustment
is P126,751.

The necessary adjusting journal entry to adjust the allowance for doubtful accounts as of
December 31, 2018 would include:
 A. No adjusting journal entry is necessary.
B. A debit to retained earnings of P13,894.
C. A debit to doubtful accounts expense P140,644.
D. A credit to allowance for doubtful accounts of P13,894.

Use the following information for the next two questions.

(Round off present value factors to four decimal places)
On December 31, 2018, Merciful Bank entered into a debt restructuring agreement with
Miserable Corp., which was experiencing financial difficulties. A note for P1,000,000 and one
year’s accrued interest was due on this date from Miserable. The note receivable from Miserable
was restructured as follows:
 Reduced the principal obligation to P700,000.
 Forgave the P120,000 of accrued interest for 2018.
 Extended the maturity date to December 31, 2021.
 Reduced the interest rate to 8%.
Interest is payable annually on December 31, beginning 2019. In accordance with the
agreement, Miserable made payments to Merciful Bank on December 31, 2019, 2020 and 2021.

13. The loan impairment loss to be recognized in Merciful Ban’s 2018 profit or loss is
A. P477,422
B. P420,000
C. P487,239
D. P 0

14. How much interest income should Merciful Bank report for the year ended December 31, 2019?
A. P75,931
B. P64,258
C. P56,000
D. P 0

15. An enterprise often factors its accounts receivable. The finance company requires an 8% reserve
and charges a 1.5% commission on the amount of the receivable. The remaining amount to be
advanced is further reduced by an annual interest charge of 16%. What proceeds (rounded to
the nearest peso) will the enterprise receive from the finance company at the time a P110,000
account that is due in 60 days is turned over to the finance company?
A. P83,630
B. P81,950
C. P99,550
D. P96,895

16. On December 31, 2018, the “Receivables” account of Albert Company shows an amortized
cost of P1,950,000. Subsidiary details show the following:

Trade accounts receivable, P775,000; Trade notes receivable, P100,000; installments receivable,
normally due one (1) year to two (2) years, P300,000; Customers’ accounts reporting credit
balances arising from sales returns, P30,000; Advance payments for purchase of merchandise,
P150,000; Customers’ accounts reporting credit balances arising from advance payments,
P20,000; Cash advances to subsidiary, P400,000; Claims from insurance company, P15,000;
Subscription receivable due in 60 days, P300,000; Accrued interest receivable, P10,000.

How much should be presented as “trade and other receivables” under current assets?
A. P725,000
B. P1,125,000
C. P1,290,000
D. P1,650,000

17. Wellington Corp. has outstanding accounts receivable totaling P1.27 million as of December
31 and sales on credit during the year of P6.4 million. There is also a debit balance of P3,000 in
the allowance for doubtful accounts. If the company estimates that 1% of its net credit sales will
be uncollectible, what will be the balance in the allowance for doubtful accounts after the
year-end adjustment to record bad debt expense?
A. P12,700
B. P15,700
 C. P61,000
D. P67,000

18. Lester Company received a seven-year zero-interest-bearing note on February 22, 2018, in
exchange for property it sold to Porter Company. There was no established exchange price for
this property and the note has no ready market. The prevailing rate of interest for a note of this
type was 7% on February 22, 2018, 7.5% on December 31, 2018, 7.7% on February 22, 2019, and
8% on December 31, 2019. What interest rate should be used to calculate the interest revenue
from this transaction for the years ended December 31, 2018 and 2019, respectively?
A. 0% and 0%
B. 7% and 7%
C. 7% and 7.7%
D. 7.5% and 8%

19. On the December 31, 2018 statement of financial position of Vanoy Co., the current receivables
consisted of the following:
Trade accounts receivable P60,000
Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit
(November 2012) 3,000
Selling price of unsold goods sent by Vanoy on consignment
At 130% of cost (not included in Vanoy’s ending inventory) 26,000
Security deposit on lease of warehouse used for storing
some inventories 30,000
Total P117,000
At December 31, 2018, the correct total of Vanoy’s current net receivables was
A. P61,000
B. P87,000
C. P91,000
D. P117,000
20. Mangaldan Company obtained a one-year loan of P5,000,000 from a bank on April 1, 2018. The
loan was discounted at 12%. The company signed a note and pledged its accounts receivable
of P5,000,000 as collateral for the loan. In relation to the loan, Mangaldan should report note
payable on December 31, 2018 at
a. P4,850,000 c. P5,450,000
b. P4,400,000 d. P4,550,000

21. On December 1, 2018 Pozurrubio Company assigned on a nonnotification 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. Pozurrubio signed a note for the bank loan. On
December 31, 2018, Pozurrubio collected assigned accounts of P3,000,000 less discount of
P200,000. Pozurrubio 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. In its December 31, 2018 balance sheet,
Pozurrubio should report note payable as a current liability at
a. P1,745,000 c. P1,545,000
b. P1,700,000 d. P2,250,000

Binalonan Company factored P5,000,000 of accounts receivable to ABC Company on July 1,

2018. Control was surrendered by Binalonan. ABC assessed a fee of 5% and retains a holdback
equal to 20% of the accounts receivable. In addition ABC charged 12% computed on a
weighted average time to maturity of the receivables of 30 days.

22. Binalonan Company will receive and record cash of

a. P3,700,685 c. P3,750,000
b. P3,700,000 d. P4,700,685
 23. Assuming all receivables are collected, Binalonan Company’s cost of factoring the receivables
would be
a. P250,000 c. P49,315
b. P299,315 d. P 0

24. On September 30, 2018, Asingan Company discounted at the bank a customer’s P5,000,000 6-
month 10% note receivable dated June 30, 2018. The bank discounted the note at 12%. The
proceeds from this discounted note amounted to
a. P5,092,500 c. P4,842,000
b. P5,250,000 d. P5,170,000

25. Urdaneta Company accepted from a customer P5,000,000, 120-day, 12% note dated August
31, 2018. On September 30, 2018, Urdaneta discounted the note at the National Bank.
However, the proceeds were not received until October 1, 2018. In the September 30, 2018
balance sheet, the amount receivable from the bank includes accrued interest revenue of
a. P200,000 c. P44,000
b. P156,000 d. P 0

26. Umingan Company has a 10% note receivable dated June 30, 2018, in the original amount of
P9,000,000. Payments of P3,000,000 in principal plus accrued interest are due annually on July
1, 2019, 2020 and 2021. In its June 30, 2020 balance sheet, what amount should Umingan report
as a current asset for interest on the note receivable?
a. P900,000 c. P300,000
b. P600,000 d. P 0

27. Balungao Company accepted a P5,000,000, 2% interest bearing note from Rosales Company
on December 31, 2018, in exchange for a machine with a list price of P4,000,000 and a cash
price of P3,750,000. The note is payable on December 31, 2020. In its 2018 income statement,
Balungao should report the sale at
a. P3,750,000 c. P5,000,000
b. P4,000,000 d. P5,200,000

On January 2, 2018 Tayog Company sold equipment with a carrying amount of P6,500,000 in
exchange for P8,000,000 noninterest bearing note due January 2, 2021. There was no
established exchange price for the equipment. The prevailing interest rate for this note on
January 2, 2018 was 10%. The present value of 1 at 10% for three periods is 0.75.

28. In the 2018 income statement, what amount should be reported as interest income?
a. P800,000 c. P660,000
b. P600,000 d. P740,000

29. In the 2018 income statement, what amount should be reported as gain or loss on sale of
equipment?
a. P1,500,000 gain c. P500,000 gain
b. P 100,000 gain d. P500,000 loss

On January 1, 2018, Mill Company sold a building and received as consideration P1,000,000 cash and
a P4,000,000 noninterest bearing note due on January 1, 2021. There was no established exchange
price for the building, and the note had no ready market. The prevailing rate of interest for a note of
this type at January 1, 2018, was 10%.

30. What amount of interest revenue should be included in Mill’s 2018 income statement?
a. 370,000
b. 400,000
c. 300,000
d. 330,000

Pasadeñas Company sold some machinery to the Rodac Company on January 1, 2017, for which the
cash selling price was P7,582,000. Rodac entered into an installment sales contract with Pasadeña at
an interest rate of 10%. The contract required payments of P2,000,000 a year over five years with the
first payment due on December 31, 2017.
 31. What amount of interest income, if any, should be included in Pasadeña’s 2018 income
statement using the “interest method”?
a. 1,000,000
b. 634,020
c. 758,200
d. 0

Appari Bank granted a loan to a borrower on January 1, 2018. The interest rate on the loan is 10%
payable annually starting December 31, 2018. The loan matures in five years on December 31, 2022.
Principal amount 4,000,000
Direct origination cost 61,500
Origination fee received from borrower 350,000

32. What is the carrying value of the loan receivable on January 1, 2018?
a. 4,000,000
b. 4,650,000
c. 4,411,500
d. 3,711,500

33. What is the interest income for 2018?

a. 400,000
b. 558,000
c. 529,380
d. 445,380

National Bank grants a 10-year loan to Abbo 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. National Bank incurs
P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In addition,
National Bank charges Abbo a 4-point nonrefundable loan origination fee.

34. National Bank, the lender, has a carrying amount of

a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000

35. Abbo, the borrower, has a carrying amount of

a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000

Kalibo Bank loaned P5,000,000 to Caticlan Company on January 1, 2016. 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, 2017. Caticlan Company made the required payments during 2017 and
2018. However, during 2018 Caticlan Company began to experience financial difficulties, requiring
Kalibo to reassess the collectibility of the loan. On December 31, 2018, Kalibo Bank determines that
the remaining principal payment will be collected but the collection of the interest is unlikely.

36. What is the loan impairment loss on December 31, 2018?

a. 420,000
b. 210,000
c. 630,000
d. 0

37. What is the interest income to be reported by Kalibo Bank in 2019?

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

Buswang Beach Bank loaned Boracay Company P7,500,000 on January 1, 2016. The terms of the loan
were payment in full on January 1, 2021 plus interest payment at 11%. The interest payment was made
as scheduled on January 1, 2017. However, due to financial setbacks, Boracay was unable to make
its 2018 interest payment. Buswang Beach considers the loan impaired and projects the cash flows
from the loan as of December 31, 2018. Assume that the bank accrued the interest at December 31,
2017, but did not continue to accrue interest due to the impairment of the loan. The projected cash
flows are:

Date of cash flow Amount projected as of Dec. 31 2018

December 31, 2019 500,000
December 31, 2020 1,000,000
December 31, 2021 2,000,000
December 31, 2022 4,000,000

38. How much is the loan impairment loss on December 31, 2018?
a. 2,965,000
b. 2,240,000
c. 5,360,000
d. 2,140,000

39. What is the interest income to be reported by Buswang Beach Bank in 2019?
a. 589,600
b. 534,600
c. 825,000
d. 599,456

Rex Company accepted a P1,000,000, 2% interest bearing note from Brooks Company on December
31, 2018, in exchange for a machine with a list price of P800,000 and a cash price of P750,000. The
note is payable on December 31, 2020.

40. In its 2018 income statement, Rex should report the sale at
a. 750,000
b. 800,000
c. 1,000,000
d. 1,040,000

END