Exam 7: Financial Assets: Cash and Receivables

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.

There are fewer note disclosures required under ASPE than under IFRS for financial instruments.

Which of the following procedures is not consistent with good control of cash receipts?

A company received in payment for merchandise sold an interest-bearing note with a face amount of $1,000, an annual interest rate of 16 percent, and a term of six months. The company sold this note to a local bank, at a discount rate of 15 percent, when the note had 60 days remaining to maturity. The cash proceeds from the discounted note amounted to (assume 360 days per year):

If a Canadian corporation reports its financial results in Canadian dollars and most of its business is conducted in the U.S., an increase in value in the Canadian dollar (versus the U.S dollar) would result in an exchange gain.

When an interest-bearing note payable is given to purchase an asset, the face amount of the note and the recorded cost of the assets received will always be the same.

If the estimate of bad debt expense is made on the basis of net credit sales, an entry is made each period to the account, "Allowance for Doubtful Accounts," without regard to the prior balance in that account.

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

When accounts receivable are factored with recourse and are accounted for as a sale, what account does the transferor credit?

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?

B owes C $3,000 per year, due over the next six years. However, C feels he needs the cash now and wants to make an offer to B for settlement at this time. If you were B, to the nearest dollar what is the maximum you would be willing to pay (assuming you have the cash to pay) in settlement today if the current interest rate is 15 percent? (Assume the first payment is due one year from today.) $_______________________.

If a customer's cheque that has been deposited is returned with the bank statement marked "insufficient funds (NSF)," it would appear on the bank reconciliation as a deduction from the ending bank balance of the company.

How is a deposit in transit reflected on a bank reconciliation (using the "correct balance format")?

An advantage of relating a company's bad debt experience to its accounts receivable is that this approach:

The gross and net methods of recording sales will always have the same income statement effect in any given period.

Simple interest is always computed based on the principal amount.

A bank reconciliation is primarily a clerical activity, which verifies cash transactions and, as such, does not identify any entries that should be made in the depositor's books.

ASPE requires that all discounts or premiums on Notes Receivable be amortized using the effective interest method.

Hedging instruments must always be classified as Fair Value through Profit or Loss (FVTPL).

Which of the following statements concerning the estimation of bad debt expense by using a percentage of credit sales is incorrect?