Exam 7: Financial Assets: Cash and Receivables

Trade accounts payable should include only obligations directly related to the primary and continuing operations of an entity.

Methods of estimating bad debts based upon the collectability of accounts receivable emphasize the balance sheet rather than the income statement.

If the effective interest is used, the market value of a Note Payable when the market interest rate is less than the rate specified for the Note Payable would be higher than its face value.

In reconciling the bank balance with the book cash balance, which of the following would not cause the bank balance shown on the bank statement to be lower than the unadjusted book balance?

In a factoring of accounts receivable without recourse, which party bears (indicated by * in the answer alternatives) the cost of bad debts and sales adjustments? bad depts sales adjuistments 1 transferor * * 2 factor * transferor * 3 factor * transferor * 4 factor *

When receivables are factored without recourse, the transferor generally:

Cash management involves the planning and control of cash to efficiently accomplish all of the following except:

The bookkeeper for a small book store prepared an unadjusted trial balance as shown below: Debit Credit Accounts receivable \ 120 Notes receivable, trade 20 Allowance for doubtful accounts 2 Sale revenue \ 1,040 Returned sales 30 Purchases 500 Purchase returns and allowances 20 Retained earnings 1,570 Prepare the appropriate entries indicated below. Each item is independent. (a) Record bad debt expense, assuming company experience indicates that 40 percent of sales are on account and 2 percent of net credit sales prove uncollectible. (b) Record bad debt expense if an aging schedule indicates that $10 of the receivable at the end of this year will not be collected. (c) Record bad debt expense if company policy requires the allowance for doubtful accounts be maintained at 5 percent of total trade receivables. (d) In April, four accounts totalling $5 were in excess of 90 days old and were determined by the collection department to be uncollectible. (e) In May of the year, one of the accounts written off in (d) was paid in full in the amount of $2.

At the end of 2008 but before adjusting entries were recorded, the records of a corporation showed the following: Balance, Accounts receivable-trade \ 90,000 Balance, Allowance for doubtful accounts (credit) 2,000 Bad debt to be written off immediately 2,250 Sales revenue ( 30\% on credit) 250,000 Required: Provide amounts for the following tabulation (show computations): CASE A CASE B End of 2002 Est. of bad debts 2\% of credit sales Est. of bad debts 3\% of accounts receivable

Trade accounts receivable due within 90 days would not normally be discounted, since the time value of money would be deemed to be immaterial in such a case.

ABC Inc. sold machinery on account to a U.S. based client on June 30^th, Year 1 in the amount of $100,000 U.S. On that date, $1US=$1.20 CAD. The account was settled on July 30^th, Year 1, when the rate was $1US=$1.22 CAD. Assuming that ABC Inc. is a publicly traded enterprise that reports its results in Canadian dollars, the effect of this transaction on its financial statements would be a:

The substance of a transfer of accounts receivable arrangement with recourse is more likely to be deemed a borrowing rather than an outright sale in most instances.

Choosing to account for a transfer of accounts receivable as a sale rather than a borrowing would result in:

Accounting for factoring accounts receivable without recourse is generally accounted for by the transferor (original seller of good or service) as a:

A company is preparing its bank reconciliation for December 31, 2004 (end of the reporting period). The following verified data are available: a. Deposits recorded by the company during December 2004 \ 19,370 b. Cheques outstanding from November 30,2004 2,730 c. Petty cash. December 31,2004 780 d. Cheques processed by the company during December 2004 20,800 e. Deposits reported by the bank during December 2004 17,810 f. Cheques cleared by the bank during December 2004 21,190 g. Returned cheque (NSF, customer) during December 2004 260 h. Deposits in transit from November 30, 2004 2,210 Based on the above data only, the amounts for the December 2004 bank reconciliation are: (1) Deposits in transit $________________. (2) Outstanding cheques $_________________.

When FVOCI financial instruments are sold, the gains or losses on disposition are recycled from AOCI to Retained Earnings.

In the transfer of accounts receivable to a third party, the original customer is informed of the transfer and makes the payment to the third party. This is referred to as notification.

A company had poor internal control over its cash transactions. Facts about its cash position at June 30, 2008, were as follows: The cash account showed a balance of $37,804, which included undeposited receipts. A credit of $200 on the bank's records did not appear on the books of the company. The balance per the bank statement was $31,102. Outstanding cheques were: No. 62 for $232, No. 183 for $300, No. 284 for $506, No. 8621 for $382, No. 8623 for $414, and No. 8632 for $290. The cashier removed all undeposited receipts in excess of $7,588 and prepared the following reconciliation: Balance, per books, June 30,2008 \ 37,804 Add: Outstanding cheques 8621 \ 382 8623 414 8632 290 886 38,690 Less: Undeposited receipts 7,588 Balance per bank, June 30,2001 31,102 Deduct: Unrecorded credit 200 True cash, June 30,2001 \ 30,902 Prepare a supporting schedule showing how much the cashier removed. Also, explain how the cashier attempted to conceal the theft.

The Direct Write-off method of accounting is conceptually inferior to other methods since it does not match bad debt expense to revenues.

A company reported the following items for the year 2007: Total sales (30 percent on credit) \ 520,000 Accounts receivable balance, Jan. 1, 2007 19,500 Allowance for doubtful accounts balance, Jan. 1, 2007 1,040 Collections on accounts receivable during 2007 159,900 Bad debts written off during 2007 1,690 The December 31, 2007 (end of the reporting period) adjusting entry for Bad Debt and Doubtful Accounts should be for the amount of, assuming: CASE A: The average experience loss rate on credit sales is 1/2 of 1 percent. $___________________. CASE B: The average experience loss rate on the year-end balance in accounts receivable is 2 percent. $________________.