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2. 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. Have no effect on net income c. Decrease the allowance for doubtful accounts
b. Increase net income d. Have no effect on the allowance for doubtful accounts
3. Trade receivables are classified as current assets if they are 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
4. Under this agreement, the seller should pay for the freight of goods delivered
a. Freight collect b. Freight prepaid c. FOB shipping point d. FOB destination
6. Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory?
a. Matching b. Verifiability c. Conservatism d. Substance over form
7. When individual customers’ accounts have credit balances of material amounts, these amounts
a. May be shown as “credit balances of customers’ accounts” in the current assets section
b. May be deducted from the debit balance in other customers’ accounts in the assets section
c. Must be reported separately in the liability section of the balance sheet
d. Should be omitted from the balance sheet
8. Gar Co. factored its receivables. Control was surrendered in the transaction which was on a without recourse basis with
Field Bank. Gar received cash as a result of this transaction, which is best described as a
a. Loan from Field collateralized by Gar’s accounts receivable
b. Loan from Field to be repaid by the proceeds from Gar’s accounts receivable
c. Sale of Gar’s accounts receivable to Field, with the risk of uncollectible accounts retained by Gar
d. Sale of Gar’s accounts receivable to Field, with the risk of uncollectible accounts transferred to Field
9. If accounts receivable are pledged against borrowings, the amount of accounts receivable pledged should be
a. excluded from total receivables with disclosure c. included from total receivables with disclosure
b. excluded from total receivables without disclosure d. included from total receivables without disclosure
10. The balance in accounts receivable is not reduced in recording which of the following types of financing arrangements?
a. Assignment of specific accounts receivable c. Factoring of accounts receivable
b. General assignment (pledge) of accounts receivable d. Transfer of accounts receivable without recourse
11. Which method of recording bad debt loss is consistent with accrual accounting
a. Allowance method c. Percent of sales method
b. Direct write-off method d. Percent of receivable method
INTERMACC: PRELEC – RRF Page 1 of 2
(Use the following information to answer items no.12 and 13)
The following information relates to accounts receivable of WAGSUSUKO Company for 2018.
Accounts Receivable, January 1 ₱1,300,000
Credit Sales 5,500,000
Sales return 150,000
Accounts written off 100,000
Collections from customers (including ₱15,000 of accounts previously written off) 5,000,000
Estimated future sales return on December 31 50,000
WAGSUSUKO has been following the policy to provide allowance for doubtful accounts of 2% of Accounts Receivable.
““When you stop expecting people to be perfect, you can like them for who they are.”
― Donald Miller, A Million Miles in a Thousand Years: What I Learned While Editing My Life