Exam 7: The Revenuereceivablescash Cycle

You are the auditor of Browning,Inc.,a manufacturer of plastic products.In reviewing the balance sheet of the company,you notice several receivables from the officers of the company.You report your findings to the president of the company and inform him that these receivables will be considered related party transactions for purposes of financial accounting and reporting.The president seems somewhat annoyed by your comments and asks you to explain what you mean by "related party" transactions and how the financial statements will be affected by these transactions.Prepare a brief response to the president's question.

The information below is from the books of the Pawnee Corporation on June 30: Assuming no errors were made,compute the cash balance per books on June 30 before any reconciliation adjustments.

Which of the following items would be added to the book balance on a bank reconciliation?

During 2012,Grinder Machinery company introduced a new line of machines that carry a three-year warranty against manufacturer's defects.Based on industry experience,warranty costs are estimated at 2% of sales in the year of sale,4% in the year after sale,and 6% in the second year after sale.Sales and actual warranty expenditures for the first three-year period were as follows: What amount should Grinder Machinery report as a liability at December 31,2014?

Assume the following facts for Lowmann Company: The month-end bank statement shows a balance of $40,000; outstanding checks total $2,000; a deposit of $8,000 is in transit at month-end; and a check for $400 was erroneously charged against the account by the bank.What is the correct cash balance at the end of the month?

When the allowance method of recognizing bad debt expense is used,the entry to record the write-off of a specific uncollectible account would decrease

On January 1,2014,Nonsuch Corporation sold specialized equipment originally costing $20,000 and having a book value of $16,000.The market value of the equipment was not readily determinable. Nonsuch received a $5,000 downpayment and a $10,000,4 percent note payable in four equal annual installments beginning December 31,2014.The current market rate on notes of a similar nature and risk is 10 percent. Required: Prepare the entries to record the sale of the equipment on January 1,2014,and the first interest payment received on December 31,2014.

The FASB specified in Statement No.140 three conditions that must be met if a transfer of receivables is to accounted for as a sale.Which of the following is not one of the three conditions specified?

Estimation of uncollectible accounts receivable based on a percentage of sales

The following is information from the books of Gioulis Consulting on September 30: Assume no errors exist,compute the cash balance per books on September 30 before any reconciliation adjustments.

For tax purposes,an entry should be made to Bad Debt Expense

Which of the following is NOT acceptable in estimating uncollectible accounts receivable under GAAP?

When a specific customer's account is written off by a company using the allowance method,the effect on net income and the net realizable value of the accounts receivable is

A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a

See Foreman Company information above. Required: Prepare the entries on Foreman Company's books to record the sale of the equipment.

A debit balance in the Allowance for Doubtful Accounts

Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's records and to identify bank errors.Adjustments should be recorded for

An operating cycle

Lawson Corporation's checkbook balance on December 31,2014,was $8,000.In addition,Lawson held the following items in its safe on December 31: The proper amount to be shown as cash on Lawson's balance sheet at December 31,2014,is

On December 1,2014,Laramie Company received a $10,000,60-day,6% note from a customer.On December 31,2014,the company discounted the note at the bank.The bank's discount rate is 9%.What were the proceeds that Barnes received from the discounting of the note?