MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y.

21-22

THEORY: (1-10, TF ; 11-30, MC)

1. An entity sold inventory for P1,000 cash. Its normal credit terms is 3/15, n/30. Using the net
method of recording, the entity should recognize a receivable of P970.

2. All claims held against customers and others for money, goods, or services are reported as current
assets.

3. Trade discounts are used to avoid frequent changes in catalogs and to alter prices for different
quantities purchased.

4. Trade receivables include notes receivable and advances to officers and employees.

5. The percentage-of-receivables approach of estimating uncollectible accounts emphasizes matching

over valuation of accounts receivable.

6. When the stated rate of interest exceeds the effective rate, the present value of the note receivable
will be less than its face value.

7. The net amount reported for short-term receivables is not affected when a specific account
receivable is determined to be uncollectible.

8. Notes receivable are generally reported as noncurrent assets.

9. The percentage-of-sales method results in a more accurate valuation of receivables on the balance
sheet.

10. Companies record and report long-term notes receivable at the present value of the cash they
expect to collect.

11. Which is accepted in determining bad debt expense?

a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of sales not adjusted for the balance in the allowance
c. A percentage of accounts receivable not adjusted for the balance in the allowance
d. An amount derived from aging accounts receivable and not adjusted for the allowance

12. When aging of accounts receivable is used

a. Bad debt expense is measured indirectly, and the allowance is measured directly
b. Bad debt expense and allowance are measured directly
c. Bad debt expense and the allowance are measured indirectly
d. Bad debt expense is measured directly and the allowance is measured indirectly

13. What is imputed interest?

a. Interest based on stated interest rate
b. Interest based on implicit interest rate
c. Interest based on average interest rate
d. Interest rate based on bank prime rate

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

14. If an entity employs the gross method of recording 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 expense” in the income statement
c. deduction from accounts receivable in determining its correct value
d. sales discounts forfeited in the cost of goods sold section of the income statement.

15. ABC Co. has an account receivable from XYZ Ltd. of P70,000. ABC also has an accounts payable to
XYZ of P120,000. Local law allows the enforceable right of set-off of the recognized amounts. It is
not normal business practice to settle the amounts net. What amounts for accounts receivable and
accounts payable should be presented in ABC’s statement of financial position, according to IAS
32?
a. AR of 70,000; AP of 120,000
b. AR of 0; AP of 50,000
c. AR of 70,000; AP of 0
d. AR of 0; AP of 120,000

16. What is the preferable presentation of accounts receivable from officers, employees, or affiliated
companies on balance sheet?
a. As offsets to capital
b. By means of footnotes only
c. As assets but separately from other receivables
d. As trade notes and accounts receivable if they otherwise qualify as current assets

17. Doubtful accounts expense is an example of what expense recognition principle?

a. Systematic and rational allocation
b. Immediate recognition
c. Cause and effect
d. Partial recognition

18. Which of the following are true about Discount on Notes Receivable?
I. Long-term interest-bearing notes where effective rate is higher than coupon rate
II. Long-term interest-bearing notes where effective rate is lower than coupon rate
III. Long-term interest-bearing notes where effective rate is equal to coupon rate
IV. Long-term non-interest bearing notes

a. I and III
b. I and IV
c. II and III
d. II and IV

19. When specific customer’s account is written off by a company using the allowance method, the
effect on net income, accounts receivable, and allowance for uncollectible accounts are?
a. No effect, no effect, decrease
b. Increase, no effect, no effect
c. Increase, decrease, decrease
d. No effect, decrease, decrease

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

20. All of the following are problems associated with the valuation of accounts receivable except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.

21. Which of the following items should be included in accounts receivable reported on the balance
sheet?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful accounts.
d. Advances to related parties and officers.

22. An interest-bearing note is recorded at face value when

a. The stated rate is greater than the market rate of interest
b. The stated rate is less than the market rate of interest
c. The stated rate is equal to the market rate of interest
d. All of the above

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

24. The advantage of relating a company's bad debt expense to its outstanding accounts receivable is
that this approach
a. gives a reasonably correct statement of receivables in the balance sheet.
b. best relates bad debt expense to the period of sale.
c. is the only generally accepted method for valuing accounts receivable.
d. makes estimates of uncollectible accounts unnecessary.

25. Which of the following is included in the normal journal entry to record the collection of accounts
receivable previously written off when using the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

26. All of the following are characteristic of financial assets classified as loan and receivables, EXCEPT
a. They have fixed or determinable payments
b. The holder can recover substantially all of its investment unless there has been credit
deterioration
c. They are not quoted in an active market
d. The holder has demonstrated positive intention and ability to hold them to maturity

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

27. Why is the allowance method preferred over the direct write-off method of accounting for bad
debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct write-off method is difficult to do.
d. Improved matching of bad debt expense with revenue.

28. Of the approaches to record cash discounts related to accounts receivable, which is more
theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.

29. When a customer purchases merchandise inventory from a business organization, she may be given
a discount which is designed to induce prompt payment. Such a discount is called a(n)
a. trade discount.
b. nominal discount.
c. enhancement discount.
d. cash discount.

30. 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 different quantities purchased.
d. all of the above.

PROBLEM-SOLVING

1. The following information is available for Hephaestus Company relative to 2021 operations:
Accounts receivable, January 1, 2021 80,000
Accounts receivable collected during 2021 85,000
Cash sales during 2021 35,000
Cost of goods sold during 2021 80,000
Gross margin on sales 65,000

What is Hephaestus Company’s accounts receivable balance at December 31, 2021?

a. 105,000 b. 190,000 c. 140,000 d. 45,000

2. On January 1, 2021, Dionysus Company sold a machine with a carrying amount of P300,000 and
accepted in exchange a promissory note with a face value of P500,000, a due date of December
31, 2025, and a stated rate of 4%, with interest receivable at the end of each year. Under the
circumstances, the note is considered to have an appropriate imputed rate of interest of 8%. The
interest income to be recognized in 2021 is
a. 20,000 b. 33,612 c. 29,264 d. 32,604

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

3. You found the following information in the general journal of Artemis, Inc as of December 31, 2021:
Accounts receivable 1,466,720
Less: Allowance for doubtful accounts (46,720)
Net realizable value 1,420,000

The accounts receivable subsidiary ledger had the following details:

Customer Invoice Date Amount Balance

(MM/DD/YY)
Nana 09/12/2021 139,200 139,200
Kaka 12/12/2021 153,600
12/02/2021 99,200 252,800
Mama 11/17/2021 185,120
10/08/2021 176,000 361,120
Dada 12/08/2021 160,000
10/25/2021 44,800
08/20/2021 40,000 244,800
Rara 09/27/2021 96,000 96,000
Fafa 08/20/2021 71,360 71,360
Qaqa 12/06/2021 112,000
11/29/2021 169,440 281,440
1,446,720

Additional information:
• You discovered based on your review that Fafa recently went bankrupt, thus suggesting that
the receivable from the same shall be written off
• You also discovered that the invoice dated 12/02/2021 has already been settled by Kaka
per OR # 34675. This amount, however, has been erroneously posted against Mama’s
subsidiary ledger as settlement for an invoice dated 11/05/2021 for the same amount
• The estimated bad debt rates below are based on the company’s receivable collection
experience:
Age of Accounts Percentage of collectability
0-30 days 98%
31-60 days 95%
61-90 days 90%
91-120 days 80%
Over 120 days 50%

What is the net adjustment to the subsidiary ledger?

a. 27,840 b. 170,560 c. 71,360 d. 99,200

4. Refer to #3. What is the adjusting journal entry to reconcile any difference between the general and
subsidiary ledger, assuming the difference is due to an error in recording sales?
a. Dr. Bad Debt Expense 20,000
Cr. Accounts Receivable 20,000
b. Dr. Sales 20,000
Cr. Accounts Receivable 20,000
c. Dr. Miscellaneous Expense 20,000

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

Cr. Accounts Receivable 20,000

d. Dr. Accounts Receivable 20,000
Cr. Miscellaneous Income 20,000

5. Refer to #3. What is the adjusting journal entry to record the write-off of Fafa’s account?
a. Dr. Bad Debt Expense 71,360
Cr. Accounts Receivable 71,360
b. Dr. Allowance for Doubtful Accounts 71,360
Cr. Bad Debt Expense 71,360
c. Dr. Sales 71,360
Cr. Accounts Receivable 71,360
d. Dr. Allowance for Doubtful Accounts 71,360
Cr. Accounts Receivable 71,360

6. Refer to #3. What is the correct Accounts Receivable balance for the year ended December 31,
2021?
a. 1,375,360 b. 1,411,040 c. 1,395,360 d. 1,275,040

7. Refer to #3. Assuming there were no other entries to the allowance for doubtful accounts, what is
the correct bad debt expense for 2021?
a. 95,680 b. 92,704 c. 141,984 d. 144,960

8. Refer to #3. What is the correct Allowance for Bad Debts for the year ended December 31, 2021?
a. 156,000 b. 153,024 c. 120,320 d. 117,344

9. Zeus Company provided the following data relating to accounts receivable for the current year:
Accounts receivable, January 1 650,000
Credit sales 2,700,000
Sales returns 75,000
Accounts written off 40,000
Collection from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000

What amount should be reported as net realizable value of accounts receivable on December 31?
a. 1,200,000 b. 1,125,000 c. 1,085,000 d. 925,000

10. An entity provided the following accounts abstracted from the unadjusted trial balance at year-end:
Accounts receivable (Dr) – P5,000,000
Allowance for doubtful accounts (Dr) – P50,000
Net credit sales (Cr) – P20,000,000

The entity estimated that 3% of the gross accounts receivable will become uncollectible. What
amount should be recognized as doubtful accounts expense for the current year?
a. 100,000 b. 150,000 c. 200,000 d. 600,000

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

11. Athena Company has an 8% note receivable dated June 30, 2021, in the original amount of
P1,500,000. Payments of P500,000 in the principal plus accrued interest are due annually on July
1, 2022, 2023, and 2024. What is the balance of note receivable on July 1, 2022?
a. 1,500,000 b. 1,000,000 c. 500,000 d. 0

12. Refer to #11. In the June 30, 2023 statement of financial position, what amount should be reported
as a current asset for interest on the note receivable?
a. 120,000 b. 40,000 c. 80,000 d. 0

13. On December 31, 2020, a financing entity had a P5,000,000 loan receivable from a borrower. The
loan bears a 10% interest rate and the financing entity accrued interest of P5,000,000 on this date.
Due to financial setbacks of the borrower, the entity decided to reduce the principal by 20%, forgive
the accrued interest and the new principal will be paid on December 31, 2022 with no interest. What
is the amount of impairment loss on the loan?
a. 2,180,000 b. 1,500,000 c. 1,000,000 d. 0

14. Verdici, Inc had net sales in 2020 of P700,000. At December 31, 2020, before adjusting entries,
the balances in selected accounts were: Accounts receivable P125,000 debit, and Allowance for
doubtful accounts P1,200 credit. Verdici estimates that 2% of its net sales will prove to be
uncollectible. What is the cash realizable value of the receivables reported on the statement of
financial position at December 31, 2020?
a. 109,800 b. 111,000 c. 112,200 d. 122,500

15. BPI granted a loan to a borrower on January 1, 2021. The interest on the loan is 8% payable annually
starting December 31, 2021. The loan matures in three years on December 31, 2024. Data related
to the loan are:
Principal amount 3,000,000
Origination fee charged against the borrower 100,000
Direct origination cost incurred 260,300

After considering the origination fee charged to the borrower and the direct origination cost
incurred, the effective rate on the loan is 6%. What is the carrying amount of the loan receivable on
December 31, 2021?
a. 3,000,000 b. 3,160,300 c. 3,109,918 d. 3,210,682

16. Demeter Corporation had a 1/1/21 balance in the Allowance for Doubtful Accounts of P20,000.
During 2022, it wrote off P14,400 of accounts and collected P4,200 on accounts previously written
off. The balance in Accounts Receivable was P400,000 at 1/1 and 480,000 at 12/31. At 12/31/22,
Demeter estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt
Expense for 2022?
a. 4,000. b. 14,200. c. 18,400. d. 24,000.

17. Hera Roads accepted a customer's P50,000 zero-interest-bearing six-month note payable in a sales
transaction. The product sold normally sells for P46,000. If the sale was made on June 30, how
much interest revenue from this transaction would be recorded for the year ending December 31?
a. 0. b. 2,000. c. 4,000. d. 5,000.

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

18. Assume Ares Corp., an equipment distributor, sells a piece of machinery with a list price of
P600,000 to Arch Inc. Arch Inc. will pay P650,000 in one year. Ares Corp. normally sells this type
of equipment for 90% of list price. How much should be recorded as revenue?
a. 540,000. b. 585,000. c. 600,000. d. 650,000.

19. At the close of its first year of operations, December 31, 2021, Euphrosyne Company had accounts
receivable of P1,080,000, after deducting the related allowance for doubtful accounts. During
2021, the company had charges to bad debt expense of P180,000 and wrote off, as uncollectible,
accounts receivable of P80,000. What should the company report on its balance sheet at December
31, 2021, as accounts receivable before the allowance for doubtful accounts?
a. 1,340,000 b. 1,180,000 c. 980,000 d. 880,000

20. Thalia Inc. made a P15,000 sale on account with the following terms: 2/10, n/30. If the company
uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to
record the sale?
a. Debit Accounts Receivable for 14,700.
b. Debit Accounts Receivable for 14,700 and Sales Discounts for 300.
c. Debit Accounts Receivable for 15,000.
d. Debit Accounts Receivable for 15,000 and Sales Discounts for 300.

PROBLEM

You are examining the Accounts Receivable and the related Allowance for Bad Debts accounts of Apollo
Company. The following data is available:

Accounts Receivable, general ledger balance P 848,000

Allowance for bad debts:
Beginning balance P 20,000
Provision per general ledger 48,000
Write-offs (16,000)
Balance, end P 52,000

The summary of the subsidiary ledger as of December 31, 2021, was totaled as follows:
Debit balances:
Under one month 360,000
One to six months 368,000
Over six months 152,000
880,000

Credit balances:
A – P8,000 (Additional billing in January 2022)
B – P14,000 (Should have been credited to D (under 1-6 mos classification)
C – P18,000 (Advance on a sales contract)
Total – P40,000

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MOCK EXAM (2nd) FOR BA 114.1 – FINANCIAL ACCOUNTING & REPORTING A.Y. 21-22

The customers’ ledger is not in agreement with the accounts receivable control. The client instructs the
auditor to adjust the control to subsidiary ledger after corrections are made.

It is agreed that 1 percent is adequate for accounts under one month. Accounts from one to six months are
expected to require a provision of 2 percent. Accounts over six months are analyzed as follows:
Definitely bad – P48,000
Doubtful (estimated to be 50% collectible) – P24,000
Apparently good, but slow (90% collectible) – P80,000
Total – P152,000

Required:

• Entry to reconcile the control ledger to the subsidiary ledger

• Entry to adjust the Bad Debts Expense
• Accounts receivable balance at December 31, 2021
• Allowance for Bad Debts at December 31, 2021
• Bad Debts Expense at December 31, 2021

(Sources: RPCPA/AICPA/Various test banks/Various review centers’ materials)