Exam 7: Financial Assets: Cash and Receivables

When a parent company transfers its receivables to one of its Special Purpose Entities (SPEs),these receivables will always be included in the parent's consolidated financial statements.

Which of the following accounting principles primarily supports the use of an allowance for doubtful accounts?

Which of the following would be classified as a trade receivable?

Simple interest usually is computed on an annual basis but it can also be compounded semi-annually,quarterly,or even daily.

If the same percentage is used,an estimate of bad debt expense based upon credit sales rather than total sales will likely be more in conformity with the matching principle.

A company is preparing the bank reconciliation for the month of May.The cash records indicate that cheques amounting to $15,000 were written during May and deposits were $21,000.The bank reconciliation of April showed outstanding cheques of $1,000 and deposits in transit of $2,000.The bank statement for May showed that total cheques cleared amounted to $14,500.Therefore,outstanding cheques at the end of May amounted to $____________.

In the assignment of accounts receivable,the right of a third party to demand payment from the transferor of the receivables if they prove uncollectible is referred to as recourse.

Computing bad debt expense by estimating the net realizable value of accounts receivable (ageing approach):

Provisions or allowances for bad debt losses on trade notes receivable are usually included in computing the balance of "Allowance for Doubtful Accounts."

The classification on the balance sheet of guaranteed investment certificates is under owner's equity.

The records of a corporation provided the following information at the end of the current reporting year,December 31,2002: The amount that the corporation should report for cash on its 2002 balance sheet is:

In a factoring of accounts receivable without 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 *

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 loan by Digitex.What is Digitex's net liability balance immediately following the transfer?

Compensating balances must always be shown separately from other financial assets under IFRS on the Statement of Financial Position.

Financial assets include both derivative and non-derivative type financial instruments.

A company accepted a trade note from AB Enterprises,face value $3,000,15 percent interest-bearing,dated August 18,maturing in 180 days.Assume 360 days in a year.Required: Sixty days prior to the maturity of the note,the company endorsed the note with recourse (discounted) to XY Finance Company at a 9 percent annual rate.Compute the following: (a) The company's proceeds from the note $_________________. Computations: (b) The company's interest earned (net of discount) $___________. Computations: (c) Give the journal entry for the company to record the discounting transaction,assuming that the end of their fiscal year is June 30.The discounting is to be recorded as a sale.Assume interest revenue was not recorded before the discounting.

Loans and receivable with a view to sale in the long-term would be accounted for using Fair Value through Profit or Loss (FVTPL).

During 2001,a corporation recorded sales as follows: Cash sales,$300,000,and credit sales,$150,000.At 12/31/01,before the adjusting entries,Accounts receivable showed a debit balance of $90,000 and Allowance for Doubtful Accounts showed a credit balance of $600. Required: (a) Assuming a bad debt of $150 is to be written off,give the journal entry on 12/31/01. (b) Give the adjusting entry for bad debt expense at 12/31/01,assuming bad debt losses are estimated to be 1 percent of credit sales. (c) Give the adjusting entry for bad debt expense at 12/31/01,assuming instead that bad debt losses are estimated to be 2 percent of the balance in the Accounts receivable account (take transaction (a) into account).

A company is preparing its bank reconciliation for December 31,2004 (end of the reporting period).The following verified data are available: Based on the above data only,the amounts for the December 2004 bank reconciliation are: (1) Deposits in transit $________________. (2) Outstanding cheques $_________________.

A note receivable that is sold (i.e.discounted) to obtain early cash must be: