Exam 7: Financial Assets: Cash and Receivables

In a factoring of accounts receivable with recourse,which party bears (indicated by * in the answer alternatives) the cost of bad debts and sales adjustments? Bad debts Sales adjustments 1 Transferor * * 2 Factor * Transferor * 3 Factor * Transferor * 4 Factor *

Using the same rate of annual interest over the same total time period,quarterly compounding will result in a larger accumulated amount than will monthly compounding.

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

On September 16,2013,a corporation sold to a bank,a customer's 18 percent,60-day note,dated August 31,2013,with a face amount of $3,000.The bank discounted the note at 15 percent.The cash received by the corporation was (assume 360 days per year):

A bank reconciliation is primarily a clerical activity,which verifies cash transactions and,as such,does not identify any entries that should be made in the depositor's books.

A company that receives cash in an amount less than the face amount of a non-interest-bearing note payable should record the note at its discounted present value.

Which party bears (indicated by * in the answer alternatives) the cost of bad debts and sales adjustments for assigned accounts receivable? Bad debts Sales adjustments 1 Assignor * * 2 Assignee * Assignor * 3 Assignee * Assignor * 4 Assignee *

If a Canadian corporation reports its financial results in Canadian dollars and most of its business is conducted in the U.S.,an increase in value in the Canadian dollar (versus the U.S dollar) would result in an exchange gain.

If the estimate of bad debt expense is made on the basis of net realizable value of the accounts receivable,the balance of the account,"Allowance for Doubtful Accounts," is adjusted so that the adjusted balance reflects the computed amount needed to value the receivables.

When a specific bad debt which has already been written off is later collected sales revenue is increased by the amount of the recovery.

The credit sales method will provide a more realistic estimate of the realizable value of a company's accounts receivable than would the aging method.

(a) A customer's $6,000,15 percent,120-day note dated December 1,2008,was sold to the bank with recourse on December 31,2008,at 18 percent to obtain quick cash for working capital purposes.Give the entry to record the proceeds.Assume interest has not been recorded on the note. Computations: (b) On the due date,the customer defaulted,the bank charges were $20.Give the required entry or entries.

Bad debt losses on accounts receivable:

On January 1,2013,a company purchased a $50,000,16 percent interest-bearing note from ABC Associates without recourse.The note was dated January 1,2012 and matures on June 30,2013.The note specifies that the full 18 months of interest is payable on the maturity date.A 20 percent discount rate was agreed to by both parties.On January 1,2013,ABC Associates should record a debit to cash for:

In order to qualify as cash equivalents,near-cash items should have a term that is within:

In the transfer of accounts receivable to a third party,the original customer is informed of the transfer and makes the payment to the third party.This is referred to as notification.

Accounting for factoring accounts receivable without recourse is generally accounted for by the transferor (original seller of good or service) as a:

If the effective interest is used,the market value of a Note Payable when the market interest rate is less than the rate specified for the Note Payable would be higher than its face value.

Choose the correct statement about recording the discounting (with recourse) of a customer's four-month note with a financial institution.Assume the note is held for a month before it is discounted.

A company held a one-year,$3,000,8 percent interest-bearing note receivable.After holding it for 2 months,the company discounted (sold) it to the bank at 10 percent.Give the entry to record the sale of the note.Assume interest revenue is not recorded before the note is discounted.