Exam 7: Cash and Receivables

Presentation and disclosure of receivables When financial statements are prepared, the presentation of and disclosures related to receivables have to be addressed. What is the objective of these disclosures?

Secured borrowings vs. factoring of receivables Explain the difference between secured borrowings and factoring.

If a note receivable was issued at an amount that is less than its face value, then

Sale of receivables without recourse Sparwood Manufacturing factored $240,000 of their accounts receivable to General Factor Corp., on a without recourse basis. The receivables are transferred to General Factor, who takes over the full responsibility of collection. General Factor charged a finance charge of 4% of the dollar value of the receivables, and withheld 5% of the receivable value. Instructions a) Prepare the general journal entry to reflect this transaction on Sparwood’s books. b) Prepare the general journal entry to reflect this transaction on General Factor’s books.

The interest element for trade receivables

The journal entries related to a bank reconciliation

Bank reconciliations Benson Plastics Company deposits all receipts and makes all payments by cheque. The following information is available from the cash records: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ MARCH 31 BANK RECONCILIATION Balance per bank.....................................$26,746 Add: Deposits in transit............................2,100 Deduct: Outstanding cheques..................(3,800) Balance per books....................................$25,046 Month of April Results Balance April 30 April deposits April cheques April note collected (not included in April deposits) April bank service charge April NSF cheque of a customer returned by the bank (recorded by bank as a charge) \ 27,995 11,784 11,100 3,000 35 900 \ 27,355 13,889 10,080 -0- -0- -0- Instructions a)Calculate the following amounts at April 30: $\quad$ 1.Deposits in transit $\quad$ 2.Outstanding cheques b)What is the April 30 adjusted cash balance? Show all work.

Reasons for selling receivables List three reasons why a business might sell its receivables to another party.

Credit policies What are the implications if credit policies are too "tight" or restrictive versus too "loose" or flexible?

Interest rate terminology Explain the difference between the following interest rate terms: Market Coupon Effective Stated Yield Face

Zero-interest bearing note Shepherd Corp. receives a five-year, $40,000, zero-interest bearing note with a present value of $34,504.40. Calculate the implicit rate of interest and provide the related journal entry at the date of issuance.

In preparing its bank reconciliation at April 30, 2020, Delta Inc. has the following information available: Balance per bank statement............................................................$45,700 NSF cheque returned with April bank statement .............................420 Deposits in transit..............................................................................2,500 Outstanding cheques..........................................................................16,000 Bank service charges for April.........................................................25 The correct balance of cash at April 30, 2020 is

Recognition and measurement of long-term notes receivable Kohl Company lent $49,587 to Hemingway Inc., accepting Hemingway's 2-year, $60,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Kohl's journal entries for the initial transaction, recognition of interest each year, and the collection of $60,000 at maturity. Kohl Company follows IFRS.

Use the following information for the following questions: Braun Company factors $300,000 of accounts receivable with Schick Factors Inc. on a without recourse basis. The receivables records are transferred to Schick Factors, which takes over full responsibility for collections. Schick assesses a finance charge of 4% and withholds an initial amount equal to 7% of the accounts receivable for returns and allowances. -The loss on disposal of receivables recorded by Braun is

Amortization of discount under the straight-line and effective interest methods On January 1, 2020, Ethiopia Corporation receives a four-year, $50,000, zero-interest-bearing note in payment of goods sold. The present value of the note equals the agreed upon sales price of $32,936.55. Ethiopia is a privately held company and follows ASPE. Instructions a) Assuming Ethiopia uses the straight-line method to amortize the note's discount, prepare the journal entry to record the sale on January 1, and the interest accrual on December 31, 2020. b) Assuming Ethiopia uses the effective interest method to amortize the note's discount, prepare the journal entry to record the sale on January 1, and the interest accrual on December 31, 2020.

Starlight Ltd. assigned $600,000 of Accounts Receivable to Moonbeam Management as security for a loan of $580,000. Moonbeam charged a 3% commission on the amount of the loan; the interest rate on the loan was 10%. During the first month, Starlight collected $320,000 of the assigned accounts, after deducting $500 of discounts. As well, Starlight accepted returns worth $2,600 and wrote off assigned accounts totalling $4,500. Entries made by Starlight during the first month would include a

The general accounting standards for recognition and measurement of accounts receivable include

Entries for bad debt expense Nairobi Corp.'s unadjusted trial balance includes the following balances: Dr. Cr. Accounts receivable. \1 50,000 Allowance for doubtful accounts . \3 ,500 Sales (all on credit) 720,000 Sales returns and allowances 30,000 Instructions a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (1) 5% of gross accounts receivable and (2) 2% of net sales. b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $3,500 instead of a credit balance.

Trade discounts are generally NOT used to

Assuming that the ideal measure of short-term receivables in the statement of financial position is the discounted value of the cash to be received in the future, failure to follow this practice usually does NOT make the financial statements misleading because