Cash & A/R

Question 1

Cash equivalents

Answer 1

• coin or cash on hand
• claims to cash like checks, money orders, or bank drafts
• money market funds
• savings accounts
• checks written by firm, but mailed after financial statement date

Question 2

Not cash

Answer 2

• certificates of deposit
• compensating balances
• overdrafts
• check with a future date/post dated check
• bond sinking fund
• escrow accounts/restricted accounts

Question 3

FOB Shipping Freight Charges

Answer 3

Buyer is responsible for paying for the freight

Question 4

FOB Destination Freight Charges

Answer 4

Seller is responsible for paying for the freight

Question 5

When you have different Banks

Answer 5

You can net the accounts in one bank together, but not for separate banks

Question 6

Marketable Securities & Cash

Answer 6

Marketable securities are not cash equivalents

Question 7

When you see something held for resale or to be sold the following year

Answer 7

It would be considered a current asset

Question 8

Balance Per Bank

Answer 8

+ Deposits in Transit
+ Cash on Hand
- Outstanding Checks
+/- Errors

Question 9

Balance Per Books

Answer 9

\+ Interest Earned
\+ Note Collected
- Service Charges
- NSF Checks
\+/- Errors

Question 10

Calculating Disbursements

Answer 10

Subtract last month’s outstanding checks from current month’s Disbursements and then add current month’s outstanding checks

Question 11

Cash Balance Per Books with last month’s banking information

Answer 11

• Subtract last month’s deposits in transit from current month’s Deposits
• Subtract last month’s outstanding checks from current month’s Disbursements
• Add Balance per books end of last month and current month’s deposits then subtract current month’s disbursements

Question 12

Accounts Receivable with Inventory Information

Answer 12

• Find COGS and if company began operations that year, there is no beginning inventory
• Multiply COGS by markup (1.4) to find credit sales
• Subtract collections from credit sales

Question 13

Direct Write Off Method - Bad debt expense & Recovered

Answer 13

Bad Debt Expense
—–Accounts Receivable

Cash
—–Bad Debts Recovered

Question 14

Allowance Method - Write Off

Answer 14

Allowance for Doubtful Accounts

———Accounts Receivable

Question 15

Allowance Method - Recovery

Answer 15

Accounts Receivable
—–Allowance for Doubtful Accounts

Cash
—–Accounts Receivable

Question 16

Allowance Method - End of period adjustment

Answer 16

Bad Debt Expense

—–Allowance for Doubtful Accounts

Question 17

Claims against shipper or other things

Answer 17

Counts as a Receivable because you are making a dispute/claim to potentially be paid back

Question 18

Allowance balance when you have Ending A/R (gross) and Net Realizable value or Aging ending A/R (net)

Answer 18

The difference between them is the balance for allowance for doubtful accounts at the end of the year

Question 19

% of Accounts Receivable uncollectible

Answer 19

It would equal ending balance for Allowance account

Question 20

Accrued Interest Receivable for a Note

Answer 20

Use the face amount and its % to calculate

Question 21

Total Interest Revenue for Note Receivable

Answer 21

Total annual payments minus the present value of the note

Question 22

Sale of A/R with recourse

Answer 22

Transferor is still responsible if transferee defaults

Question 23

Sale of A/R without recourse

Answer 23

Transferee assumes full responsibility

Question 24

Sale of Accounts Receivable if things go well

Answer 24

Cash
—–Accounts Receivable

Also gain or loss

Question 25

• Firm factors $20,000
• 5% factor charges & 3% holdback
• Without recourse

Answer 25

Cash 18,400(20,000[1-5%-3%])
Receivable from Factor 600(20,0003%)
Loss on Sale of Receivables 1,000(20,0005%)
—–Accounts Receivable 20,000

Sales Returns & Allowances 600
———-Receivable from Factor 600

Question 26

• Firm factors $20,000
• With Recourse
• 2% factor charge
• Liability for bad debts is $1,000

Answer 26

Cash 19,600(20,0002%)
Loss on Sale of Receivables 1,400([20,0002%] + 1,000)
———-Accounts Receivable 20,000
———-Recourse Liability 1,000

Question 27

• Firm factors $20,000
• With Recourse
• 2% factor charge
• Liability for bad debts is $1,000
• Does not meet criteria for sale

Answer 27

Cash $20,000(1.00 − .02) 19,600
Discount on Factor Liability $20,000(.02) 400
—–Factor Liability 20,000
Allowance for Doubtful Accounts 1,000
—–Accounts Receivable 1,000

Factor Liability 20,000
—–Accounts Receivable 19,000
—–Cash (to pay for uncollectible accounts) 1,000
Interest Expense 400
—–Discount on Factor Liability 400

Question 28

Due from Factor & Recourse Liability

Answer 28

• Due from factor accounts for allowances, returns, and discounts
• Recourse liability is recorded to indicate probable uncollectible accounts

Question 29

Factoring questions asking about total cash recorded

Answer 29

Include holdback fee

Question 30

Cost of factoring fees

Answer 30

Does not include holdback fee

Question 31

When note becomes impaired

Answer 31

Record a loss equal to Difference between carrying value of note and PV of cash flows expected to be received

Question 32

When Journalized for A/R Factorization

Answer 32

• Holdback gets own line as a debit and other deductions are netted into cash received
• Cash received is A/R minus holdback & other deductions