Exam 6: Cash and Receivables

The gross price method highlights sales discounts taken and the net price method highlights sales discounts NOT taken.

Which of the following statements concerning compensating balance agreements is not true?

In certain circumstances a company may find it necessary to accelerate the cash inflows potentially generated from its accounts receivable. This can be accomplished through pledging, assigning, or factoring the accounts receivable. Required: Explain each of these three arrangements. Include in your discussion an explanation of each agreement, who retains the risks and benefits of ownership, whether or not the agreement is formally recorded in the company's accounting records, and how the agreement is disclosed in the company's financial statements.

Which of the following is not a disadvantage of using the direct write-off method for recording uncollectible accounts?

During 2016, Blueberry, Inc. recovered and collected $4,200 from an account that had been written off for over a year. At the end 2016, prior to the adjusting entry for bad debt expense, Blueberry, Inc.'s balances for Accounts Receivable and Allowances for Doubtful Accounts were $750,000 debit) and $5,500 credit), respectively. After the bad debt expense entry was posted, the net realizable value of accounts receivable was $675,000. Bad debt expense for the 2016 was

When a company factors its accounts receivable, it

Based on the following information: If expected bad debts are estimated to be 1 1/2% of ending accounts receivable, the adjusting entry to recognize bad debts will include a debit to Bad Debt Expense for

A compensating balance used to secure a short term loan should be recorded against its short term borrowing in current assets separate from cash.

Which of the following methods is not an appropriate method for estimating bad debt expense for companies whose uncollectible accounts are material?

When accounting for uncollectible accounts,

Exhibit 6-1 O’Martin & Lowry, Inc. accepted a $150,000, 8%, 90-day note receivable for services rendered to a client. Thirty days later, O’Martin & Lowry discounted the note at a bank at 10%. Assume interest has not been recognized for the first month. -Refer to Exhibit 6-1. The entry to record the proceeds from the sale of the note would include a

Deposits made directly by the bank would be

When pledging accounts receivable

The entry to replenish the petty cash fund for $250 of various minor expenses would include a

What are the basic issues related to the valuation of receivables?

Wholesale Stuff, Inc. sells to retailers on account. Sales for the year totaled $9,900,000. The company uses the aging method for determining bad debt expense. The aging report and related information includes: The unadjusted balance in the allowance account at year end is $1,700 credit. What is the estimated net realizable value of receivables at year end?

Describe the key elements for internal control of cash receipts and cash payments.

Compensating balance agreements are held against short-term borrowings should

A company may elect to use the fair value option for a single note receivable or for all notes receivable.

What journal entry format is appropriate if sales returns and allowances occur on factored accounts?