Exam 7: Financial Assets: Cash and Receivables

The reported net carrying amount of a non-interest-bearing note payable recorded on a gross basis will increase as time goes by.

Cash,as defined for financial reporting purposes,includes currency,coin,and deposits at commercial banks,which are available for immediate use.

A non-interest-bearing note receivable:

ABC Inc.is a Canadian company that reports its results in Canadian dollars.The company sold equipment to a customer in the U.S.for $95,000 US on January 1,2013 when the exchange rate was $1 CDN = $0.95 US.The client received the equipment on January 31^st,2013 and promptly wired the required payment to ABC Inc.On January 31,2013,$1 CDN = $0.96 US.

Short-term payables may include a current maturity of a long-term liability that arises when the next payment on such a debt will be made out of current assets.

The substance of a transfer of accounts receivable arrangement with recourse is more likely to be deemed a borrowing rather than an outright sale in most instances.

Entel Inc.factored $100,000 of its accounts receivable without recourse with a factor and received $80,000.Of the $20,000 difference,$8,000 was the financing fee and the remainder was held back for sales adjustments.The firm and the factor agree to share equally the cost of any sales adjustments exceeding $12,000.Actual sales adjustments amounted to $14,000; the remaining amount of receivables was collected. Entel's entry to record the factoring of accounts receivable will include:

When receivables are factored with recourse and recorded as a sale,the transferor generally:

At year-end,the following balances appeared on the ledger of a company prior to adjusting and closing it books. All receivables arose out of sales transactions except the advances to officers.The company's president estimated that 2 percent of outstanding customer receivables would not be collected.The controller believed that three-quarters of one percent of net credit sales would result in bad debts.How much should be debited to bad debt expense if: (a) The president's estimate prevails? $__________________. (b) The controller's view is accepted? $__________________.

E Company's bank statement and cash account for the month of August 2003 were as follows: BANK STATEMENT SUMMARIZED** CASH ACCOUNT* Bal.July 31 6,000 Aug Deposits 17,500 $\quad$$\quad$ Aug cheques 20,000 ___________ *Includes Aug.31,2003,cash on hand,$257 **Data from July 31,2003,bank reconciliation: Cash on hand \ 250 Outstanding cheques 550 Deposits in transit 1,500 Required: (a) Complete an August 31,2003 bank reconciliation in all respects (you must compute the August 31,2003 outstanding cheques and deposits in transit). (b) Give all of the August 31,2003 entries based upon your bank reconciliation (you can give separate entries or combine them into one entry).

Collateral securities are assets of the borrower that the secured lender can seize if the note goes into default.

Digitex Inc.factored $50,000 of its accounts receivable with recourse.The factor retained 8% for sales adjustments and charged $3,000 as a financing fee.Estimated and actual amounts are as follows: Sales adjustments \ 2,500 Uncollectible accounts 500 Assume the transfer is recorded as a sale by Digitex.What is the loss or financing expense to be recognized on the transfer?

Methods of estimating bad debts based upon the collectability of accounts receivable emphasize the balance sheet rather than the income statement.

How is a deposit in transit reflected on a bank reconciliation (using the "correct balance format")?

Overdrafts in one chequing account can be offset by positive balances in other accounts,only if the accounts are at the same financial institution.

The time value of money is measured by the excess of resources received,or paid over the amount of resources lent or borrowed at a different date.

A company had a petty cash account with a stated balance of $300 on January 1,2001.Petty cash expenses for 2001 were as follows: postage,$45; supplies used,$145; parking fees,$30.At the end of 2001,the auditor counted the money in the petty cash fund and found $50 cash on hand.The December 31,2001,entry regarding the petty cash fund should be: 1 Postage expense 45 Supplies expense 145 Parking expense 30 Cash 220 2 Postage expense 45 Supplies expense 145 Parking expense 30 Cash short 30 Cash 250 3 Postage expense 45 Supplies expense 145 Parking expense 30 Cash short 30 Cash 30 Petty cash 220 4 Postage expense 45 Supplies expense 145 Parking expense 30 Cash 30 Petty cash 220

A company received in payment for merchandise sold an interest-bearing note with a face amount of $1,000,an annual interest rate of 16 percent,and a term of six months.The company sold this note to a local bank,at a discount rate of 15 percent,when the note had 60 days remaining to maturity.The cash proceeds from the discounted note amounted to (assume 360 days per year):

If the estimate of bad debt expense is made on the basis of net credit sales,an entry is made each period to the account,"Allowance for Doubtful Accounts," without regard to the prior balance in that account.

Trade accounts payable should include only obligations directly related to the primary and continuing operations of an entity.