FAR THEORIES (RECEIVABLES- INVENTORIES)
C. Current assets were overstated and income was overstated
A company discovered a P20,000 overstatement of its 2023 ending inventory after the financial statements for 2023 were prepared. The effect of this error on the 2023 financial statement was: A. Current assets were overstated and income was understated B. Current assets were understated and income was overstated C. Current assets were overstated and income was overstated D. Current assets were understated and income was understated
C. The transferor maintains continuing involvement.
All but one of the following are required before a transfer of receivables can be recorded as a sale. A. The transferred receivables are beyond the reach of the transferor and its creditors. B. The transferor has not kept effective control over the transferred receivables through a repurchase agreement. C. The transferor maintains continuing involvement. D. The transferee can pledge or sell the transferred receivables.
A. Cash 8,600 Assignment Service Charge expense 400 Accounts Receivable 9,000
Cadiz, Inc., assigned P10,000 to a finance company, receiving an advance of 90% less a service charge of P400. Later P2,000 of these receivables were collected and remitted to the finance company with an additional P200 of interest. Given this information, which entry would not be made? A. Cash 8,600 Assignment Service Charge expense 400 Accounts Receivable 9,000 B. Note Payable 2,000 Interest Expense 200 Cash 2,200 C. Cash 2,000 Accounts receivable Assigned 2,000 D. Accounts Receivable Assigned 10,000 Accounts Receivable 10,000
C. Either a or b.
How to generate cash from the receivables without collecting them? A. Sell the receivables. B. Use the receivables as collateral. C. Either a or b. D. Neither a nor b.
A. Note receivable should be credited
If a note receivable is discounted without recourse A. Note receivable should be credited B. Liability for note receivable discounted should be credited C. The transaction should be accounted for as a secured borrowing as opposed to a sale D. The contingent liability may be disclosed in either a contra receivable or a note to the FS
A. Yes Yes
If financial assets are exchanged for cash or other consideration, but the transfer does not meet the criteria for a sale, the transferor and the transferee should account for the transaction as a I. Secured borrowing II. Pledge of collateral A. Yes Yes B. Yes No C. No Yes D. No No
C. Accounts receivable and cost of goods sold
In a perpetual inventory system, recording a sale on account involves debiting which of the following accounts? A. Only accounts receivable B. Accounts receivable and inventory C. Accounts receivable and cost of goods sold D. Accounts receivable, cost of goods sold and inventory
A. Lower of cost and net realizable value
Inventories are required to be stated at the A. Lower of cost and net realizable value B. Lower of cost and fair value C. Lower cost and recoverable value D. Lower of FIFO cost and net realizable value
D. Item by item
Inventories are usually written down to net realizable value A. By classification B. By total C. By segment D. Item by item
C. Factor's holdback
It is a predetermined amount withheld by a factor as a protection against customer returns, allowances and other special adjustments A. Equity in assigned accounts B. Service charge C. Factor's holdback D. Loss on factoring
C. Estimated selling price less estimated cost to complete and estimated cost to sell
Net realizable value (NRV) is computed as A. Estimated selling price less estimated cost to sell B. Estimated selling price less estimated cost to complete C. Estimated selling price less estimated cost to complete and estimated cost to sell D. Estimated selling price less estimated cost to complete, estimated cost to sell and normal profit margin
A. I, II and IV only
Net realizable value of inventories may fall below cost for a number of reason/s including: I. Product obsolescence II. Physical deterioration of inventories III. An increase in the expected replacement costs of the inventory IV. An increase in the estimated cost of completion A. I, II and IV only B. II, III and IV only C. I, III and IV only D. I and II only
B. A debit to Purchase Discounts Lost of P258
On December 3, Francis Company purchased inventory listed at P8,600 from Lyn Corporation. Terms of the purchase were 3/10, n/20. Francis Company also purchased inventory from Duck Company on December 10 for a list price of P7,500. Terms of the purchase were 3/10, n/30. On December 16, Francis paid both suppliers for these purchases. If Francis uses the net method of recording purchases, the journal entry to record the payment on December 16 will include A. A debit to Accounts payable of P15,875 B. A debit to Purchase Discounts Lost of P258 C. A credit to Purchase Discounts of P258 D. A credit to Cash of P15,617
D. Maturity value
Short-term noninterest-bearing note receivable are usually recorded at their: A. Present value B. Net realizable value C. Discounted value D. Maturity value
B. Dr. Accounts payable P100,000 Cr. Cash P100,000
The entry of the buyer to record the settlement of a purchase on account amounting to P100,000 and freight of P10,000 on a purchase transaction with terms of FOB destination, freight prepaid is A. Dr. Freight-in P110,000 Cr. Cash P110,000 B. Dr. Accounts payable P100,000 Cr. Cash P100,000 C. Dr. Accounts payable P 100,000 Cr. Cash P 100,000 D. Dr. Freight-out P 10,000 Cr. Accounts receivable P 10,000
D. Import duties
The following are costs excluded from the cost of inventories, except A. Abnormal amounts of wasted materials, labor or other production costs B. Storage costs, unless those costs are necessary in the production process before a further production stage C. Administrative overheads that do not contribute to bringing inventories to their present location and condition D. Import duties
D. Invoice price less the purchase discount allowable whether taken or not
The use of a discount lost account implies that the recorded cost of an inventory is A. Invoice price B. Invoice price plus the purchase discount lost C. Invoice price less the purchase discount taken D. Invoice price less the purchase discount allowable whether taken or not
A. Invoice price
The use of purchase discounts account implies that the recorded cost of a purchased inventory item is its A. Invoice price B. Invoice price plus any purchase discount lost C. Invoice price less the purchase discount taken D. Invoice price less the purchase discount allowable whether taken or not
B. Periodic
Under this inventory system, a physical count is necessary before profit is determined A. Perpetual B. Periodic C. FIFO D. Both perpetual and periodic
D. Long term interest bearing notes receivables with stated rate equals effective rate
Which of the following notes receivable shall be reported at face value? A. Long term non-interest bearing notes receivable B. Long term interest bearing notes receivable with stated rate higher than effect rate C. Long term interest bearing notes receivables with stated rate lower than effect rate D. Long term interest bearing notes receivables with stated rate equals effective rate
D. A physical inventory is made at year-end in order to set up the cost of goods sold
Which of the following statements is incorrect about perpetual inventory system? A. Inventory account is debited upon purchase B. One of the entries made to make up return of goods sold on account is Dr. inventory and Cr. cost of goods sold. C. Sales allowance granted to customer on account would require an entry debiting sales returns and allowance and crediting accounts receivable. D. A physical inventory is made at year-end in order to set up the cost of goods sold.
B. Gross profit will be understated
Which of the following will result if the current year's ending inventory amount is understated? A. Cost of goods sold will be understated B. Gross profit will be understated C. Net income will be overstated D. Retained earnings will be overstated
C. Receivable arising from legal service rendered by a law firm.
1. Which of the following is a trade receivable? A. Claims against shipping company for damaged goods or lost goods. B. Advances to officers and employees. C. Receivable arising from legal service rendered by a law firm. D. Accrued interest on notes receivable
A. Aging of accounts receivable
A method of estimating doubtful accounts that emphasizes asset valuation rather than income measurement is the allowance method based on A. Aging of accounts receivable B. Direct write off C. Gross sales D. Credit sales less sales returns and allowance
A. Fair market value of property goods or service or note whichever is more reliably determined.
A noninterest-bearing note received in exchange for property goods or service is recorded at A. Fair market value of property goods or service or note whichever is more reliably determined. B. Maturity value of the note. C. Face value of the note. D. Carrying amount of the property.
C. Expected amount to be received
Accounts receivable are normally reported at the A. Present value of future cash receipts B. Current value plus accrued interest C. Expected amount to be received D. Current value less expected collection cost
A. Disclosed in the notes
Accounts receivable hypothecated against borrowing should be A. Disclosed in the notes B. Excluded from the total receivable, with disclosure C. Excluded from the total receivables, with no disclosure D. Excluded from the total receivables and a gain or loss is recognized
A. Affects neither net income nor working capital
An entity uses the allowance method for recognizing doubtful accounts. The entry to record the write off of specific uncollectible account. A. Affects neither net income nor working capital B. Affects neither net income nor account receivable C. Decreases both net income and working capital D. Decreases both net income and accounts receivable
D. Merchandise is returned and the perpetual inventory method is used.
An entry debiting inventory and crediting cost of goods sold would be made when A. Merchandise is sold and the perpetual inventory is used. B. Merchandise is sold and the periodic inventory method is used. C. Merchandise is returned and the periodic inventory method is used. D. Merchandise is returned and the perpetual inventory method is used.
A. The amount of discount is not material
Assuming that the ideal measure of short-term receivable in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because A. The amount of discount is not material B. Most receivables can be sold to a bank or factor C. Most short-term receivables are not interest-bearing D. The allowance for uncollectible accounts includes a discount element
D. P50,000 over P10,000 under P40,000 under
Elrond Company began operations in 2021. During the first two years of operations, Elrond made undiscovered errors in taking its year-end inventories that overstated 2021 ending inventory by P50,000 and overstated 2022 ending inventory by P40,000. The combined effect of these errors on reported income is 2021 2022 2023. (respectively) A. P50,000 over P90,000 over P40,000 under B. P50,000 over P40,000 over not affected C. P50,000 under P90,000 under not affected D. P50,000 over P10,000 under P40,000 under
B. Emphasizes measurement of bad debt expense
Estimation of uncollectible accounts receivable based on a percentage of sales A. Emphasizes measurement of net realizable value of accounts receivable B. Emphasizes measurement of bad debt expense C. Emphasizes measurement of total assets D. Is only acceptable for tax purposes
C. The ownership of goods is transferred upon receipt of the goods by the buyer and the seller is the owner of the goods while in transit.
FOB destination point means that A. The freight charges are actually to be paid by the seller B. The freight charges are actually to be paid by the buyer C. The ownership of goods is transferred upon receipt of the goods by the buyer and the seller is the owner of the goods while in transit. D. The ownership of goods is transferred upon receipt of the goods by the seller and the buyer is the owner of the goods while in transit.
B. Without recourse, notification basis
Factoring of receivable is usually done on a A. With recourse, notification basis B. Without recourse, notification basis C. With recourse, non-notification basis D. Without recourse, non-notification basis
D. Used in the production or supply of goods and services for administrative purpose.
Inventories are assets defined by all of the following, except A. Held for sale in the ordinary course of business. B. In the process of production for such sale. C. In the form of materials or supplies to be consumed in the production process or the rending or services. D. Used in the production or supply of goods and services for administrative purpose.
B. 58,000
Otter Company sold receivables with recourse for P530,000. Otter received P500,000 cash immediately from the factor. The remaining P30,000 will be received once the factor verifies that none of the receivables is in dispute. Control was surrendered by Otter. The receivables had a face amount of P600,000; Otter had previously established an Allowance for Bad Debts of P25,000 in connection with these receivables. The fair value of the recourse obligation is P13,000. The loss on factoring to be recognized by Otter Company is A. 88,000 C. 45,000 B. 58,000 D. 83,000
D. All of these.
Reversals of inventory write-downs A. Are not prohibited under the PFRSs. B. Should not exceed the amount of write-downs previously recognized. C. Are always recognized in profit or loss. D. All of these.
A. All statements are true
Statement 1: Interest bearing long-term receivable shall be stated at face value. Statement 2: Noninterest-bearing long-term receivables shall be stated at present value. Statement 3: Short-term receivable, interest bearing or not, are generally stated at face value. A. All statements are true B. Only statement 1 is true C. Only statement 2 is false D. Only statement 3 is false
B. FOB destination point freight collect
The buyer paid the shipper freight charges and later asked for reimbursement from the seller. The term agreed must have been A. FOB destination point freight prepaid B. FOB destination point freight collect C. FOB shipping point freight prepaid D. FOB shipping point freight collect
B. Presented separately as currently liability.
The credit balance in customer's accounts should be A. Netted against the debit balances in other customer's accounts. B. Presented separately as currently liability. C. Reported as a loss contingency. D. Reported as a valuation account to receivables
B. Dr. Accounts payable P110,000 Cr. Cash P110,000
The entry of the buyer to record the settlement of a purchase on account amounting to P100,000 and freight of P10,000 on a purchase transaction with terms of FOB shipping point, freight collect is A. Dr. Freight-in P110,000 Cr. Cash P110,000 B. Dr. Accounts payable P110,000 Cr. Cash P110,000 C. Dr. Accounts payable P 90,000 Cr. Cash P 90,000 D. Dr. Freight-out P 10,000 Cr. Accounts receivable P 10,000
D. An understatement of liabilities and an overstatement of owner's equity
The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in: A. An overstatement of assets and net income B. An understatement of assets and net income C. An understatement of cost of goods sold and liabilities and an overstatement of assets D. An understatement of liabilities and an overstatement of owner's equity
B. Advances to subsidiaries and affiliates
The following are normally included in the line item trade and other receivables', except A. Advances to officers and employees B. Advances to subsidiaries and affiliates C. Receivables from sale of securities or property other than inventory. D. Dividends and interest receivable.
C. FOB shipping point, freight prepaid
The seller actually paid the freight charges but is not legally responsible for the same. A. FOB destination, freight prepaid B. FOB destination, freight collect C. FOB shipping point, freight prepaid D. FOB shipping point, freight collect
A. Cash discounts are initially ignored and are recorded only when taken
Under the gross method of recording purchases, A. Cash discounts are initially ignored and are recorded only when taken. B. Cash discounts are deducted from the cost of inventory on initial recognition. C. Cash discounts lost are debited to "purchase discount lost" account D. A and C
C. Cost of goods sold is computed at the end of the accounting periods rather than at each sale.
When a company uses the periodic inventory system in accounting for its merchandise inventory, which of the following is true? A. Purchases are recorded in the cost of goods sold account. B. The inventory account is updated after each sale. C. Cost of goods sold is computed at the end of the accounting periods rather than at each sale. D. The inventory account is updated throughout the year as purchases are made.
A. Total cost of goods sold is computed by deducting ending inventory from total goods available for sale.
When a company uses the perpetual inventory system in accounting for its merchandise inventory, which of the following is false? A. Total cost of goods sold is computed by deducting ending inventory from total goods available for sale. B. The inventory account is updated after each sale. C. One of the entries to record return of goods is debit inventory and credit cost of goods sold. D. None of the above.
B. Decrease both accounts receivable and net income
When the direct write off method is used, the entry to write off a specific customer account would A. Increase both accounts receivable and net income B. Decrease both accounts receivable and net income C. Increase net income D. Have no effect on net income
D. Title passes upon receipt of the goods by the buyer.
Which is incorrect concerning the maritime term FAS (free alongside)? A. The seller must bear all expenses and risk in delivering the goods to the dock next to the vessel on which they are to be shipped. B. The buyer bears the cost of loading and cost if shipment. C. Title passes to the buyer when the carrier takes possession of the goods. D. Title passes upon receipt of the goods by the buyer.
D. Pledged accounts receivable remain the assets of the borrower and continue to be presented in its financial statements, with appropriate disclosure of the pledge transaction; assigned receivables are assets of the lender/assignee but the assignment is disclosed in the financial statements of the borrower/assignor.
Which of the following is not a valid comparison between pledging and assignment of accounts receivable? A. Under pledge, all accounts receivables are set as collateral security for borrowings; under assignment only specific receivables are set as collateral security. B. In pledging, the lender has limited rights to inspect the borrower's records to achieve assurance that the receivables do exist; in assignment the lender will make an investigation of the specific receivables that are being proposed for assignment and will approve those that are deemed worthy to be held as collateral security. C. No journal entry is made for the pledged receivables; an entry is made for the assigned receivables. D. Pledged accounts receivable remain the assets of the borrower and continue to be presented in its financial statements, with appropriate disclosure of the pledge transaction; assigned receivables are assets of the lender/assignee but the assignment is disclosed in the financial statements of the borrower/assignor.
C. Direct write-off method
Which of the following is not permitted for material amount of uncollectible accounts receivable? A. Percentage of accounts receivable using allowance method B. Percentage of sales using allowance method C. Direct write-off method D. All of the choices are acceptable
C. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the accounts receivable.
Which of the following is true when accounts receivable are factored without recourse? A. The transaction may be accounted for either as a secured borrowing or as a sale. B. The receivables are used as collateral for a promissory note issued to the factor. C. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the accounts receivable. D. The financing cost should be recognized ratably over the collection period
C. Claims from employees representing cash advances.
Which of the following items is not a trade receivable? A. Customer's accounts on which post-dated checks are held. B. Claims from employees representing selling price of goods sold under normal condition. C. Claims from employees representing cash advances. D. None of the above.
A. Percentage of sales
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
D. To accelerate access to amounts collected.
Why would a company sell receivables to another company? A. To improve the quality of its credit granting process. B. To limit its legal liability. C. To comply with customer agreements. D. To accelerate access to amounts collected.
