Republic of the Philippines

Commission on Higher Education

Don Honorio Ventura State University
Bacolor, Pampanga

QUIZ- CHAPTER 5 LOANS RECEIVABLE

ACCTG 102- INTERMEDIATE ACCOUNTING 1

Name: _______________________________________ Section: _______________________

ANSWER SHEET

SET 1.A

PROBLEM 1:

LOVEANIA BANK granted a loan to a borrower named HATEANIA on January 1, 2021. The interest on the loan is
10% payable annually starting December 31, 2021. The loan matures in four years on December 31, 2024. (USE 4
DECIMAL PLACES IN THE PV FACTOR)

Principal Amount P 4,000,000

Direct Origination Cost Incurred P 529,480
Origination Fee 10% of the Principal Amount

1. What is the carrying amount on December 31, 2023?

a. P 4,101,133 c. P 3,999,846
b. P 4,036,556 d. P 4,070,235

2. What is the Interest Income in 2024?

a. P 371,653 c. P 737,974
b. P 366, 321 d. P 363,290

3. What is the effective interest rate?

a. 10% c. 9%
b. 8.5% d. 8%

4. What is the carrying amount on December 31, 2022?

a. P 4,101,133 c. P 3,999,846
b. P 4,036,556 d. P 4,070,235

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SOLUTION

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 5. Which of the following procedures provide the best evidence about the collectability of Notes Receivable?

a. Examination of Cash Receipts records to determine promptness of interest and principal payments.
b. Reconciliation of the detail of notes receivable and the provision for uncollectible amounts to the general
ledger account
c. Confirmation of notes receivable balance with debtors
d. Examination of notes for appropriate debtors’ signatures

PROBLEM 2:

Manifesto Bank granted a loan to a borrower in the amount of P 5,000,000 on January 1, 2021. The interest rate on the
loan is 10% payable annually starting December 31, 2021. The loan matures on December 31, 2025. Manifesto Bank
incurs P 39, 400 of direct loan origination cost and P 10,000 of indirect loan origination cost. In addition, Manifesto
bank charges the borrower an 8 percent non-refundable loan origination fee. (USE 4 DECIMAL PLACES IN THE
PV FACTOR)

Based on the above information, answer the following:

6. What is the effective Interest Rate?

a. 14% c. 15%
b. 13% d. 12%

7. What is the carrying amount of the loan on January 1, 2024?

a. P 4,830,823 c. P 4,910,522
b. P 4,696,128 d. P 4,759,663

8. What is the total interest income as of December 31, 2022?

a. P 1,150,859 c. P 1,120,263

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 b. P 1,168, 962 d. P 1,134,695

9. What is the interest income on January 1, 2025?

a. P 571,160 c. P 589,263
b. P 579,699 d. P 563,535

10. What is the carrying amount of the loan on January 1, 2023?

a. P 4,830,823 c. P 4,910,522
b. P 4,696,128 d. P 4,759,663

SOLUTIONS:

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 11. On August 15, an entity sold goods for which it received a note bearing the market rate of interest on that
date. The four-month note was dated July 15. Note Principal, together with all interest is due November 15.
When the note was recorded on August 15, which of the following accounts increased?

a. Unearned Discount
b. Interest Receivable
c. Prepaid Interest
d. Interest Revenue

since the note was dated July 15 and it was received on August 15, there is an accrued interest receivable for one
month from July 15 to August 15

12. What is the treatment of “Direct origination Cost” incurred in connection with loans and receivables?

a. Included in Profit or Loss

b. Part of the initial carrying amount of the loans receivable and amortized using the effective interest
method.
c. Part of the initial carrying amount of the loans receivable and amortized using the straight-line method.
d. Charged directly to retained earnings.

13. Loans and Receivables are non-derivative financial assets

a. With fixed or determinable payments that are quoted in an active market

b. Without fixed or determinable payments that are quoted in an active market
c. With fixed or determinable payments that are not quoted in an active market
d. Without fixed or determinable payments that are not quoted in an active market

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PROBLEM 3:

14. On January 1, 2023, the HEALER Company loaned P 3,000,000 to TIME Corporation. The terms of the loan
were payment in full on January 1, 2026, plus annual interest payments at 11%. The interest payments were
made as scheduled until January 1, 2025; however due to financial setbacks, TIME Corporation was unable to
make its 2025 interest payment. The company considers the loan impaired and projects the following cash
flows from the loan.

Period 1 P 200,000
Period 2 P 400,000
Period 3 P 800,000
Period 4 P 1,200,000
Period 5 P 400,000

What is the Impairment loss in 2025?

a. P 1,215,700 c. P 1,212,380
b. P 1,214,800 d P 1,213,870

15. What is the Present Value of Cash flows?

a. P 2,115,700 c. P 2,116,770
b. P 2,116,620 d. P 2,117,620

16. What is the carrying amount after impairment?

a. P 2,115,700 c. P 2,116,770
b. P 2,116,620 d. P 2,117,620

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 17. Which statement is incorrect regarding measurement of receivables?

a. Trade receivables are usually measured initially at their transaction price.

b. Receivables not measured initially at their transaction price are measured initially at fair value plus
transaction costs that are directly attributable to the acquisition of the financial asset.
c. Receivables are usually measured subsequently at amortized cost using the effective interest method.
d. The fair value of a long-term loan or receivable that carries no interest can be estimated as
the future value of all cash receipts.

18. Which statement is incorrect regarding the general approach of applying the impairment requirements of
PFRS 9?

a. At each reporting date, an entity recognizes a loss allowance based on either 12-month ECLs or lifetime
ECLs, depending on whether there has been a significant increase in credit risk on the financial instrument
since initial recognition.
b. If the credit risk increases significantly and the resulting credit quality is not considered to be low credit
risk, full lifetime expected credit losses are recognized.
c. When the entity has no reasonable expectations of recovering the financial asset, then the gross carrying
amount of the financial asset should be directly reduced in its entirety.

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 d. Increases in the loss allowance balance are recognized in profit or loss as an impairment loss but
decreases are not recognized.

19. The amortized cost of a financial asset is the amount at which it is measured at initial recognition.

a. Minus the principal repayments

b. Plus, or minus the cumulative amortization using the effective interest method of any difference
between the initial amount and the maturity amount.
c. Adjusted for any loss allowance.
d. All of these

20. When calculating the effective interest rate, an entity shall include.

a. All fees and points paid or received between parties to the contract that are an integral part of the
effective interest rate.
b. All other premiums or discounts.
c. Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset
or financial liability.
d. All of these.

Taking responsibility is one of the most important factors that defines a person’s
real character.

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