PHINMA – Rizal College of Laguna, Inc.

National Highway (Manila South Road), Parian, Calamba City, Laguna

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

QUIZZER 5

RECEIVABLES
MULTIPLE CHOICE. ENCIRCLE THE LETTER OF YOUR ANSWER. ERASURE OF ANY KIND IS STRICTLY
PROHIBTED.

1. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers representing employee loans
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these
2. When the allowance method of recognizing bad debts expense is used, the entry to record the write-off of a specific
uncollectible account would decrease
a. the allowance for doubtful accounts.
b. the profit for the period.
c. the net realizable value of accounts receivable.
d. the working capital.
3. Information from the records of Stormfall Co. is shown below:
 Accounts receivable - net of ₱8,000 credit balance in customers' accounts 100,000
 Notes receivable (trade) 15,000

 Notes receivable (non-trade), ₱15,000 collectible within one year 30,000

 Dividends receivable 2,000
 Subscriptions receivable 2,000
 Advances to officers and employees (due in 10 months) 4,000
 Accounts payable - net of ₱10,000 debit balance in
suppliers' accounts 3,000
How much are the following?

Total trade receivables Total current receivables

a. 132,000 154,000
b. 123,000 154,000
c. 143,000 162,000
d. 123,000 145,000
4. On December 27, 20x1, ABC Co. received a sale order for a credit sale of goods with selling price of ₱3,000. The goods
were shipped by ABC on December 31, 20x1 and were received by the buyer on January 2, 20x2. The related shipping
costs amounted to ₱20. ABC Co. collected the receivable on January 5, 20x2. If the term of the sale is FOB destination,
freight collect, how much net cash is collected on January 5, 20x2?
a. 3,020
b. 3,000
c. 2,980
d. 0

5. Soap Co. has the following information on December 31, 20x1 before any year-end adjustments.
Allowance for doubtful accounts, Jan. 1 30,400
Write-offs 19,000
Recoveries 3,800
Sales (including cash sales of ₱380,000) 2,280,000
Sales returns and discounts (including ₱3,800 sales
22,800
returns on cash sales)
Accounts receivable, Dec. 31 570,000
Percentage of credit sales 3%

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How much is the recoverable historical cost of accounts receivable?
a. 498,370
b. 502,630
c. 486,780
d. 478,970

6. Washing Co. has the following information on December 31, 20x1 before any year-end adjustments.
Accounts receivable, Jan. 1 80,000
Net credit sales 270,000
Collections from customers (including recoveries) 140,000
Allowance for doubtful accounts, Jan. 1 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%
How much is the bad debt expense?
a. 4,250
b. 4,300
c. 4,550
d. 10,300

7. Fabric Co. sells to wholesalers on terms of 2/15, net 30. An analysis of Fabric Co.’s trade receivable balances on
December 31, 20x1, revealed the following:
Age in days Receivable balances
0 – 15 180,000
16 – 30 108,000
31 – 60 90,000
61 – 90 72,000
91 – 120 54,000
121 – 150 36,000
Total accounts receivables 540,000
Fabric Co. uses the aging of receivables method. The estimated percentages of collectability based on past experience
are shown below:

Accounts that are overdue for less than 31 days 97%

Accounts that are overdue 31 – 60 days 90%
Accounts that are overdue 61 – 90 days 85%
Accounts that are overdue 91 – 120 days 65%
Accounts that are overdue for over 120 days 40%

The allowance for doubtful accounts has a balance of ₱18,000 as of January 1, 20x1. Write-offs and recoveries during the
year amounted to ₱6,000 and ₱3,000, respectively.

How much is the doubtful accounts expense for the year?

a. 15,600
b. 9,000
c. 22,600
d. 28,200

Use the following information for the next two questions:

ABC Co. has the following information on December 31, 20x1 before any year-end adjustments.
Net credit sales 6,300,000
Accounts receivable, December 976,500
Allowance for doubtful accounts, Dec. 31 (before any
53,550
necessary year-end adjustments)
Percentage of credit sales 2%

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The aging of receivables is shown below:
Days outstanding Receivable balances % uncollectible
0 – 60 378,000 1%
61 – 120 283,500 2%
Over 120 315,000 6%
Total accounts receivables 976,500

Additional information:
 ABC Co. uses the percentage of credit sales in determining bad debts in monthly financial reports and the aging of
receivables for its annual financial statements.
 Accounts written-off during the year amounted to ₱119,700 and accounts recovered amounted to ₱28,350.
 As of December 31, ABC Co. determined that ₱63,000 accounts receivable from a certain customer included in the “61-
120 days outstanding” group is 95% collectible and a ₱31,500 account included in the “Over 120 days outstanding” group
is worthless and needs to be written-off.

8. How much is the balance of the allowance for doubtful accounts on January 1, 20x1?
a. 12,600
b. 18,900
c. 19,200
d. 23,400

9. How much is the adjusted bad debt expense to be reported in the year-end financial statements?
a. 123,300
b. 128,700
c. 143,300
d. 132,300

10. ABC Co. has the following information before any year-end adjustment.
Accounts receivable, Dec. 31 600,000
Allowance for doubtful accounts, Jan. 1 18,000 (Dr.)
Percentage of receivables 2%
Write-offs and recoveries during the year amounted to ₱22,800 and ₱3,000, respectively. How much is the bad debts
expense for the year?

a. 13,800
b. 26,800
c. 49,800
d. 52,800

11. Which of the following is incorrect?

a. The operating cycle always is one year in duration.
b. The operating cycle sometimes is longer than one year in duration.
c. The operating cycle sometimes is shorter than one year in duration.
d. The operating cycle is a concept applicable both to manufacturing and retailing enterprises.

12. The category "trade receivables" includes

a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies for casualties sustained.
d. none of these.

13. Which of the following should be recorded in Accounts Receivable?

e. Receivables from officers
f. Receivables from subsidiaries
g. Dividends receivable
h. None of these

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 14. When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific customer
account would
a. increase net income.
b. have no effect on net income.
c. increase the accounts receivable balance and increase net income.
d. decrease the accounts receivable balance and decrease net income.

15. When comparing the allowance method of accounting for bad debts with the direct write-off method, which of the
following is true?
a. The direct write-off method is exact and also better illustrates the matching principle.
b. The allowance method is less exact but it better illustrates the matching principle.
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate entries to write off an uncollectible account.

16. When the allowance method of recognizing bad debt expense is used, the entry to record the write-off of a specific
uncollectible account would decrease
e. allowance for doubtful accounts.
f. net income.
g. net realizable value of accounts receivable.
h. working capital.

17. When a specific customer's account is written off by a company using the allowance method, the effect on net
income and the net realizable value of the accounts receivable is
Net Realizable Value
Net Income of Accounts Receivable

a. None None
b. Decrease Decrease
c. Increase Increase
d. Decrease None

18. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of a small
account previously written off would
a. increase net income.
b. increase the allowance for doubtful accounts.
c. decrease net income.
d. decrease the allowance for doubtful accounts.

19. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the
allowance method based on
a. direct write-off.
b. aging the trade receivable accounts.
c. credit sales.
d. specific accounts determined to be uncollectible.

20. The entry

Accounts Receivable xxx
Allowance for Uncollectible Accounts xxx
would be made when

a. a customer pays its account balance.

b. a customer defaults on its account.
c. a previously defaulted customer pays its outstanding balance.
d. estimated uncollectible receivables are too low.

21. At January 1, 20x1, Judy Co. had a credit balance of ₱260,000 in its allowance for uncollectible accounts. Based
on past experience, 2% of Judy 's credit sales have been uncollectible. During 20x1, Judy wrote off ₱325,000 of
uncollectible accounts. Credit sales for 20x1 were ₱9,000,000. In its December 31, 20x1, balance sheet, what
amount should Judy report as allowance for uncollectible accounts?

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 a. 115,000
b. 180,000
c. 245,000
d. 440,000

22. On the December 31, 20x6, balance sheet of Esther Co., the current receivables consisted of the following:

Trade accounts receivable 93,000

Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 20x6) 3,000
Selling price of unsold goods sent by Esther on consignment at
130% of cost (not included in Esther's ending inventory) 26,000
Security deposit on lease of warehouse used for storing some
inventories 30,000
Total 150,000

At December 31, 20x6, the correct total of Esther's current net receivables was
a. 94,000
b. 120,000
c. 124,000
d. 150,000

23. The following information is from the records of Prosser, Inc. for the year ended December 31, 2002.

Allowance for Doubtful Accounts, January 1, 2002 .. ₱ 6,000 (cr)

Sales, 2002 ....................................... 2,920,000
Sales Returns and Allowances, 2002 ................ 32,000

If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts expense for 2002 is
a. ₱22,800.
b. ₱23,200.
c. ₱28,880.
d. ₱34,880.

24. An analysis and aging of the accounts receivable of Shriner Company at December 31 revealed the following data:

Accounts Receivable .................................. ₱450,000

Allowance for Doubtful Accounts (before adjustment) .. 25,000 (cr)
Required ending balance of allowance ............... 32,000 (cr)

The net realizable value of the accounts receivable at December 31 should be

a. ₱450,000.
b. ₱443,000.
c. ₱425,000.
d. ₱418,000.

25. Maple Company provides for doubtful accounts expense at the rate of 3 percent of credit sales. The following data
are available for last year:

Allowance for Doubtful Accounts, January 1 ........ ₱ 54,000 (cr)

Accounts written off as uncollectible during the
year ............................................ 60,000
Collection of accounts written off in prior years .
(customer credit was re-established) .............. 15,000
Credit sales, year-ended December 31 .............. 3,000,000

The allowance for doubtful accounts balance at December 31, after adjusting entries, should be
a. ₱45,000.
b. ₱84,000.
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 c. ₱90,000.
d. ₱99,000.

26. Based on the aging of its accounts receivable at December 31, Pribob Company determined that the net realizable
value of the receivables at that date is ₱760,000. Additional information is as follows:
Accounts Receivable at December 31 ................ ₱880,000
Allowance for Doubtful Accounts at January 1 ...... 128,000 (cr)
Accounts written off as uncollectible during the
year ............................................ 88,000

Pribob's doubtful accounts expense for the year ended December (31 is
a. ₱80,000.
b. ₱96,000.
c. ₱120,000.
d. ₱160,000.

27. Based on its past collection experience, Ace Company provides for bad debts at the rate of 2 percent of net credit
sales. On January 1, 2002, the allowance for doubtful accounts credit balance was ₱10,000. During 2002, Ace
wrote off ₱18,000 of uncollectible receivables and recovered ₱5,000 on accounts written off in prior years. If net
credit sales for 1999 totaled ₱1,000,000, the doubtful accounts expense for 2002 should be
a. ₱17,000.
b. ₱20,000.
c. ₱23,000.
d. ₱35,000.

28. Richards Company uses the allowance method of accounting for bad debts. The following summary schedule was
prepared from an aging of accounts receivable outstanding on December 31 of the current year.

No. of Days Probability

Outstanding Amount of Collection
0-30 days ₱500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80

The following additional information is available for the current year:

Net credit sales for the year .................. ₱4,000,000

Allowance for Doubtful Accounts:
Balance, January 1 ............................. 45,000 (cr)
Balance before adjustment, December 31 ......... 2,000 (dr)

If Richards determines bad debt expense using 1.5 percent of net credit sales, the net realizable value of accounts
receivable on the December 31 balance sheet will be
a. ₱738,000.
b. ₱740,000.
c. ₱742,000.
d. ₱750,000.

29. Gekko, Inc. reported the following balances (after adjustment) at the end of 2002 and 2001.
12/31/2002 12/31/2001

Total accounts receivable ................. ₱105,000 ₱96,000

Net accounts receivable ................... 102,000 94,500

During 2002, Gekko wrote off customer accounts totaling ₱3,200 and collected ₱800 on accounts written off in previous
years. Gekko's doubtful accounts expense for the year ending December 31, 2002 is
a. ₱1,500.
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 b. ₱2,400.
c. ₱3,000.
d. ₱3,900.

30. Gray Company had an accounts receivable balance of ₱50,000 on December 31, 2001, and ₱75,000 on December
31, 2002. The company wrote off ₱20,000 of accounts receivable during 2002, and collected ₱3,000 on an account
written off in 2000. Sales for the year 2002 totaled ₱620,000. All sales were on account. The amount collected from
customers on accounts receivable during 2002, including recoveries, was
a. ₱575,000.
b. ₱578,000.
c. ₱600,000.
d. ₱595,000.

31. The category "trade receivables" includes

a. advances to officers and employees.

b. income tax refunds receivable.
c. claims against insurance companies for casualties sustained.
d. none of these

32. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

33. What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a
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.

34. 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.

35. 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.

36. If a company 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. a deduction from accounts receivable in determining the net realizable value of accounts receivable.
d. sales discounts forfeited in the cost of goods sold section of the income statement.

37. Why do companies provide trade discounts?

a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different customers.
d. Both a. and c.
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38. The accounting for cash discounts and trade discounts are
a. the same.
b. always recorded on the net.
c. not the same.
d. tied to the timing of cash collections on the account

39. 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.

40. 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.

TEST II. TRUE OR FALSE. INDICATE YOUR ANSWER ON THE SPACE PROVIDED. ERASURE OF ANY KINND IS
STRICTLY PROHIBITED.

41. ____________ Accounts receivable are to be reported at their net realizable value.
42. ____________ The direct write-off method for uncollectible accounts does not provide for the matching of current
revenues with related expenses.
43. ____________ The use of the direct write-off method is acceptable under generally accepted accounting principles.
44. ____________ Doubtful accounts expense is normally reported as a deduction from sales in the income statement.
45. ____________ The entry to write off an uncollectible account under the allowance method is a debit to Doubtful
Accounts Expense and a credit to Accounts Receivable.
46. ____________ The method of estimating uncollectible accounts expense based on the accounts receivable balance
emphasizes the determination of the net realizable value of the receivables.
47. ____________ When estimating collectability based on an analysis of the accounts receivable balance, any existing
balance in the allowance for doubtful accounts is ignored.
48. ____________ The aging method of estimating doubtful accounts is a variation of the percentage of ending
receivables method.
49. ____________ The "list" sales price less any trade discount is the invoice amount.
50. ____________ Sales discounts are normally reported as selling expenses.

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