Intermediate Accounting Quizzes and Answers

1. An entity sells goods either on cash basis or on 6-month installment basis. On January 1, 20x1, goods with cash price of P50,000 were sold at an installment price of 175,000. Which of the following statements is correct? a. Net receivable of 175,000 is recognized on the date of sale. b. Net receivable of P50,000 is recognized upon full payment of the total price. c. The P20,000 difference between the cash price and installment price is recognized as interest income on the date of sale. d. Net receivable of P50,000 is recognized on the date of sale. 2. An entity sells goods for P150,000 to a customer who was granted a special credit period of 1 year. The entity normally sells the goods for P120,000 with a credit period of one month or with a P10,000 discount for outright payment in cash. How much is the initial measurement of the receivable? a. 150,000 b. 120,000 c. 130,000 d. 110,000 SOLUTIONS TO QUIZ 2: 1. D 2. D Solution: Normal selling price with credit period of one month Discount for cash on delivery Cash price equivalent of the goods sold 120,000 (10.000) Use the following information for the next two questions: On January 1, 20x1, ABC Co. sold a transportation equipment with a historical cost of P1,000,000 and accumulated depreciation of P300,000 in exchange for cash of P100,000 and a noninterest-bearing note receivable of P800,000 due on January 1, 20x4. The prevailing rate of interest for this type of noté is 12%. 3. How much is the interest income in 20x12 a. 68,331 b. 76,532 c. 85,714 d. 96,000 4. How much is the carrying amount of the receivable on December 31, 20x2? a. 800,000 b. 569,424 c. 637,755 d. 714,286 3. A Solution: Initial measurement: 800,000 x PV of 1 @12%, n=3=569,424 Subsequent measurement: Date interest income Unearned interest Present value 1/1/x1 68,331 230,576 569,424 12/31/x1 76.531 162,245 637,755 12/31/x2 85,714 85,714 714,286 12/31/x3 4. D (See solution above) 5. C Use the following information for the next three questions: On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of P20,000,000 and accumulated depreciation of P7,000,000 in exchange for cash of P500,000 and a noninterest-bearing note receivable of P8,000,000 due in 4 equal annual installments starting on December 31, 20x1 and every December 31 thereafter. The prevailing rate of interest for this type of note is 12%. 5. How much is the interest income in 20x1? a. 728,946 b. 678,334 c. 728,964 d. 704,236 6. How much is the current portion of the receivable on December 31, 20x1? a. 1,271,036 b. 1,423,560 c. 3,380,102 d. 1,594,388 7. How much is the carrying amount of the receivable on December 31, 20x2? a. 4,803,663 b. 3,380,102 c. 6,074,699 d. 6,000,000 4. D (See solution above) 5. C Solution: Initial measurement: (BM+4) x PV ordinary annuity of 1@12%, n=4 = 6,074,699 Subsequent measurement: Date 1/1/20x1 12/31/20x1 12/31/20x2 12/31/20x3 12/31/20x4 Collections Interest Income 728.964 576,440 405,612 214,286 Amortization Present value 6,074,699 4,803,663 3,380,102 1,785,714 0 1.271.036 1,423,560 1,594,388 1,785,714 2,000,000 2,000,000 2,000,000 6. B (See solution above) 7. B (See solutions above) Use the following information for the next three questions: On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of P12,000,000 and accumulated depreciation of P7,000,000 in exchange for cash of P100,000 and a noninterest-bearing note receivable of $4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and every January 1 thereafter. The prevailing rate of interest for this type of note is 12%. 8. How much is the interest income in 20x1? a. 408,230 b. 278,334 c. 328,964 d. 288,220 9. How much is the carrying amount of the receivable on December 31, 20x1? a. 1,690,510 b. 892,857 c. 2,690,051 d. 1,594,388 10. How much is the carrying amount of the receivable on January 1, 20x3? a. 892,857 b. 3,380,102 c. 6,074,699 d. 6,000,000 B. D (See solutions below) 9. C Solutions: Initial measurement: (4M+4) x PV annuity due of 1 @12%, n=43,401,831 Subsequent measurement: Date Collections Interest income Amortization Present value Jan. 1, 20x1 3,401,831 Jan. 1, 20x1 288,220 711,780 2.401.831 Jan. 1. 20x2 202.806 1,600,051 Jan. 1. 20x3 107,143 797,194 892857 0 Jan. 1. 20x4 892,857 The carrying amount of the notes receivable as of December 31, 20x1 is determined as follows: Carrying amount of notes receivable-Jan. 1, 20x2 1,690,051 Add back: Collection on Jan. 1, 20x2 Carrying amount of notes receivable Dec. 31, 20x1 2,690,051