Accounts Receivable

Question 1

What receivables are reported separately from trade receivables?

Answer 1

Receivables that are not related to normal operations, such as amounts due from officers , employee’s or stockholder’s

Question 2

NRV

Answer 2

Gross amount less estimates that will not be collectible (uncollectible accounts, discounts, trade discounts and sales return and allowances)

Question 3

Gross Method

Answer 3

shown at gross. if discount is taken, considered a reduction of sales.

Question 4

Net Method

Answer 4

Shown at net, if discount not taken shown as interest income.

Question 5

Pledging

Answer 5

client borrows necessary cash and pledges (offers) the receivable to the lender to secure the loan . Must be adequately disclosed in the statements

Question 6

Assigning

Answer 6

Client borrows the necessary cash and agrees to use the proceeds from the receivable to repay the lender . Customer might be notified to pay lender directly.

Question 7

Factoring without recourse

Answer 7

client sells receivable to another party (a factor) with the buyer assuming risk that the receivable may not be collectible

Question 8

factoring with recourse

Answer 8

client sells receivable to another part (factor) with the buyer retaining the right to demand the client make good on the receivable if the customer does not pay as promised.

Question 9

Participating Interest

Answer 9

represents proportionate interest in the entire instrument, all cash flows from the instrument are divided proportionately among participating interest holders, the rights of all participating interests have the same priority and are not subordinated to one another, all participating interests must agree in order for a party to pledge or exchange the financial instrument

Question 10

Accounting for a Transfer of FI’s or a group of FI’s is based on what?

Answer 10

whether or not the transferor has surrendered control

Question 11

Transfer, if control has been surrendered, what will the transaction be recognized as?

Answer 11

Sale, along with a related gain or loss

Question 12

Transfer, if control has NOT been surrendered, what will the transaction be recognized as?

Answer 12

security borrowing with the financial instrument pledged as collateral

Question 13

What conditions must be met for a control to be surrendered and a sale to be booked?

Answer 13

1) transferred FI have been isolated from the transferor and beyond the reach of the transferor or its creditors, 2) transferees have the right to pledge or exchange the asset it received without restrictions and without providing trivial benefit to the transferor 3) the transferor does not maintain effective control over the FI

Question 14

Factor’s holdback

Answer 14

Due from factor, amount which provides a margin of protection against sales discounts , sales returns and allowances and disputed amounts.

Question 15

Recourse obligation

Answer 15

probable uncollectible accounts, amount included as protection for the transferee against uncollectible accounts, such as obligations result in continuing interest in the asset

Question 16

What is the sale of short terms AR?

Answer 16

Factoring

Question 17

Discounting

Answer 17

Sale of long term notes receivable

Question 18

What are Interest Only Strips classified as?

Answer 18

Financial instruments

AFS or Trading

Question 19

Future Value Factor

Answer 19

1 / present value factor

Question 20

Non Interest Bearing Note -

Answer 20

If the interest rate is not stated or is unreasonable, use the FMV of the goods or the FMV of the note, whichever is more easily determinable.

Question 21

Imputed Interest Rate is used when:

Answer 21

interest rate is not stated and the FMV of the goods or the FMV of the note is not determinable

Question 22

Companies can ignore the interest rate component as long as two conditions exist:

Answer 22

1) entire NR will be collected in one year, 2) terms of the sale are customary in the trade