Exam 7: Cash and Receivables

Explain how a company could manipulate cash flow from operations by changing the extent to which it factors accounts receivable and treats those factoring arrangements as sales of receivables.

A company's investment in receivables is influenced by several variables, including:

Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of accounting for cash discounts. What entry would Oswego make on April 23, assuming the customer made the correct payment on that date?

As of January 1, 2018, Farley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on experience, 2% of Farley's credit sales have been uncollectible. During 2018, Farley wrote off $650,000 of accounts receivable. Credit sales for 2018 were $18,000,000. In its December 31, 2018, balance sheet, what amount should Farley report as allowance for uncollectible accounts?

Rusty Hardware makes only cash sales. It began 2018 with a credit balance of $32,000 in the refund liability account. Sales during 2018 were $600,000. Rusty estimates that 6% of all sales will be returned. During 2018, customers returned merchandise for credit of $28,000 to their accounts. -What is the balance in the allowance for sales returns account at the end of 2018?

If cash has been collected from a customer, recognizing estimated sales returns results in recognizing a refund liability.

Briefly explain the accounting treatment for estimated sales returns at the end of an accounting period for which accounts receivable remain outstanding.

The Fitzgerald Company maintains a checking account at the Bank of the North. The bank provides a bank statement along with canceled checks on the last day of each month. The October 31, 2018, bank statement included the following information: The company's general ledger cash (checking) account had a balance of $42,544 at the end of October. Deposits outstanding totaled $4,224, and all checks written by the company were processed by the bank except for those totaling $5,620. In addition, a check for $500 for the purchase of office furniture was incorrectly recorded by the company as a $50 disbursement. The bank correctly processed the check during October. Required: 1. Prepare a bank reconciliation for the month of October. 2. Prepare the necessary journal entries at the end of October to adjust the general ledger cash account.

Unless specific sales criteria are met, the factoring of accounts receivable with recourse is accounted for as a loan.

Which of the following is considered a sale of receivables?

For 2018, Rahal's Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2017. During 2018, Rahal's credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off. - Rahal's accounts receivable at December 31, 2018, are:

Brewer Inc. is owed $200,000 by Carol Co. under a 10% note with two years remaining to maturity. Due to financial difficulties Carol Co. did not pay the prior year's interest. Brewer agrees to settle the receivable (and accrued interest) in exchange for a cash payment of $150,000. The journal entry that Brewer would make to record this transaction would include a loss on troubled debt restructuring of:

The transferor is considered to have surrendered control over its receivables if:

Alliance Software began 2018 with accounts receivable of $115,000. All sales are made on credit. Sales and cash collections from customers for the year were $780,000 and $700,000, respectively. Cost of goods sold for the year was $450,000. What was Alliance's receivables turnover ratio (rounded) for 2018?

On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for cash discounts. What entry would Cherokee make on November 10?

From a financial accounting perspective, the main purposes of a system of internal control are to improve the accuracy and reliability of accounting information and to safeguard assets.

Compensating balances represent:

The following information relates to Halloran Co.'s accounts receivable for 2018: Accounts receivable balance, 1/1/2018 \8 40,000 Credit sales for 2018 3,300,000 Accounts receivable written off during 2018 70,000 Collections from customers during 2018 3,100,000 Allowance for uncollectible accounts balance, 12 / 31 / 2018 120,000 What amount should Halloran report for accounts receivable, before allowances, at December 31, 2018?

Rebound Inc. reports under IFRS. In 2018 Rebound recognized an impairment of $200,000 due to a troubled debt restructuring. In 2019 Rebound was pleased to determine that more cash flows would be received from the receivable than was previously thought, such that, if the total impairment were to be calculated in 2019, it would be estimated as $150,000 rather than $200,000. How should Rebound treat this in its 2019 income statement?

For 2018, Rahal's Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2017. During 2018, Rahal's credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off. - Rahal's final balance in its allowance for uncollectible accounts at December 31, 2018, is: