Exam 6: Cash and Receivables

Exhibit 6-1 O'Martin & Lowry, Inc. accepted a $150,000, 8%, 90-day note receivable for services rendered to a client. Thirty days later, O'Martin & Lowry discounted the note at a bank at 10%. Assume interest has not been recognized for the first month. -Refer to Exhibit 6-1. The entry to record the proceeds from the sale of the note would include a

Compensating balance agreements that legally restrict cash should

Hunter's, Inc. reported a balance of $141 in its cash account at the end of the month. There were $120 of deposits in transit and $115 of checks outstanding. The bank statement showed a balance of $151, service charges of $7, and the collection of a note plus interest. The note had a face value of $17. How much interest did the bank collect for the company?

On November 1, 2014, Yellow Grove Co. sold $45,000 of goods and accepted a note bearing 8% interest. The note was due in one year. Required: a.Prepare a reversing entry for January 1, 2015. b.Record the collection of the note on October 31, 2015.

When a company extends credit to its customers, the company realizes it will not likely collect all of the related accounts receivable. As some accounts may prove to be uncollectible, a company must estimate its bad debt expense. Required: a.What is the purpose of estimating bad debt expense? b.There are two relationships that can be used to estimate the bad debt expense for a company. Describe the two major relationships that can be used to estimate bad debts expense and the financial statement orientation of each.

Puzzle Company sold merchandise on credit with a list price of $75,000. Terms were 3/10, n/30. Given the indicated sales discounts methods in the responses, which entry is correct?

How does GAAP require receivables to be recorded? What about trade receivables?

Littlestown Corporation reports the following information: Required: Compute the correct amount of cash that will appear as a current asset on Littlestown Corporation's balance sheet.

Trainor Company estimates bad debt expense using a percentage of credit sales (5%). The company began its current year with an $8,500 balance in the allowance account. During the current year, $10,500 of accounts receivable were written off, and $1,200 of previously written off accounts were collected. Credit sales for the year were $255,000. The bad debt expense for the year was

Most trade receivables are initially recorded at their

When the gross method of recording sales and accounts receivables is used it overstates sales and receivables because of this most companies do not use this method.

Exhibit 6-1 O'Martin & Lowry, Inc. accepted a $150,000, 8%, 90-day note receivable for services rendered to a client. Thirty days later, O'Martin & Lowry discounted the note at a bank at 10%. Assume interest has not been recognized for the first month. -Refer to Exhibit 6-1. The entry to record the proceeds from the sale of the note would include a

When an uncollectible account is written off under the estimated allowance method, it

Splitter Corporation had total sales in the current year of $750,000 and credit sales of $650,000. The Accounts Receivable balance was $450,000 on the balance sheet date and the Allowance for Doubtful Accounts had a credit balance of $10,000 before adjusting entries. Bad debt expense is estimated as 2% of credit sales. The adjusting entry to record estimated bad debt expense would include a

Which of the following reconciling items would require an adjusting journal entry on the company's books?

Companies should use petty cash funds to

Short-term noninterest-bearing notes receivable are usually recorded at their

After the company completes the bank reconciliation, it makes journal entries for adjustments

Under U.S. GAAP, a company can designate a receivable, upon initial recognition, to be recognized at fair value without meeting any criteria. IFRS has established qualifying criteria for fair value designation. Required: Describe the IFRS qualifying criteria that must be met to designate a receivable as fair value.

Which of the following is not considered cash for financial statement reporting