Chapter 6

Question 1

Cash is the most _______ asset

Answer 1

liquid

Question 2

What are examples of cash

Answer 2

Coin, currency. money orders, certified checks, cashier checks, bank drafts and savings accounts

Question 3

What are cash equivilets

Answer 3

Short-term, highly liquid investments that are both…
a.) readily convertible cash
b.) so near their maturity that they present little risk of changes in values

Question 4

What are examples of cash equivalents

Answer 4

Treasury bills, certificates of deposits, commercial paper, and money market funds

Question 5

What is restricted cash

Answer 5

Cash that has to be used for a specific purpose

Question 6

What are examples of restricted cash

Answer 6

Plant Expansion, retirement, or long-term debt, contractual agreements, compensating balances

Question 7

What is a compensating balance

Answer 7

A minimum balance that must be maintained in a bank account and is used to offset the cost incurred by the bank to set up a loan

Question 8

if it is a compensating balance against short-term borrowings it is reported as…

Answer 8

cash and cash equivilents

Question 9

If a compensating balance is for a long-term borrowing then it is considered…

Answer 9

non current asset/investment

Question 10

Bank Overdrafts are

Answer 10

when a company writes a check for more than it has in its cash account

Question 11

How are bank overdrafts reported

Answer 11

As current liabilities,

If its for the same bank then it offsets against other cash accounts

Question 12

What are receivables

Answer 12

Claims held against customers and others for money, good, services

Question 13

How are receivables classified in the balance sheet

Answer 13

• Current or noncurrent
  -Trade or non trade

Question 14

Trade receivables are

Answer 14

receivables directly related to the good/service

Question 15

What does the revenue recognition principal indicate

Answer 15

that a company should recognize revenue when there is a transfer of control

Question 16

What is the transaction price for a receivable

Answer 16

The amount the company expects to receive minus any discounts, returns and allowances rebates and performance bonuses

Question 17

What is the gross method?

Answer 17

That is when receivables are originally recorded w/out consideration of discount

Question 18

What is the Net Method

Answer 18

when receivables are reported net (subtracted) of the discounts

Question 19

How do you calculate your Net A/R

Answer 19

A/R minus AFDA

Question 20

What is the allowance method

Answer 20

When companies estimate uncollectible accounts at the end of each period

Question 21

What is the entry for estimating the uncollectible

Answer 21

BDE
AFDA

Question 22

What is the entry for a write off

Answer 22

AFDA
A/R

Question 23

What is the journal entry for gaining back your write off

Answer 23

A/R
AFDA

Question 24

What is the journal entry for collecting the reversed write off

Answer 24

Cash
A/R

Question 25

A write off only affects what...

Answer 25

Balance sheet accounts

Question 26

What is the method for estimating the AFDA

Answer 26

Percentage-of-receivables approach - one composite rate -aging schedule

Question 27

notes receivable generally originate from...

Answer 27

-Customers who need to extend A/R -High risk new customers -Loan to employees and subsidiaries - Sales on PPE -Lending transactions

Question 28

When there is no discount/premium on a notes receivable then...

Answer 28

Stated Rate = Market Rate

Question 29

In the zero interest bearing not The difference between the PV and FV of the note is the...

Answer 29

discount

Question 30

how would you record the issuance of a zero interest bearing not

Answer 30

N/R Discount on N/R Cash

Question 31

How would you record the interest revenue at the end of the year from zero interest bearing notes

Answer 31

- discount on notes receivable Interest Rec

Question 32

How do you calculate the carrying value

Answer 32

N/R + PV interest + PV FV also... Face Value - Unamortized discount or + Unamortized premium

Question 33

What are installment notes

Answer 33

- Notes with equal periodic payments for principal and interest

Question 34

How are short term notes receivable reported

Answer 34

at net realizable value

Question 35

how are long term notes receivables valued

Answer 35

at cost and also their fair value

Question 36

Why do owner transfer accounts or notes receivable

Answer 36

- competition -sell receivables because money is tight - billing and collection are time consuming and costly

Question 37

What are the two ways to dispose of Receivables

Answer 37

Factoring (selling) Assignment (secured borrowings)

Question 38

What are Factors of Receivables

Answer 38

companies or banks that buy receivables for a fee and then collect the payments directly from customers

Question 39

What is sale without recourse

Answer 39

-Purchaser assumes risk of collection -Transfer is outright sale of receivable -Seller records loss of sale

Question 40

What is sale with recourse

Answer 40

Seller guarantees payment to purchaser

Question 41

How would you record the journal entry for sale without recourse

Answer 41

Cash (Plug) Loss on Sale of Receivable (Fee) Receivable from factor Receivable

Question 42

How would you record the transaction for sale of receivables with recourse

Answer 42

1.) Cash (Plug) 2.) Loss on Sale (Fee + Recourse Liability) 3.) Receivable form factor 4.) Receivable 5.) Recourse Liability

Question 43

What is assignment of Accounts Receivable

Answer 43

A company can borrow money on notes receivable and use accounts receivable as collateral

Question 44

What is General Assignment

Answer 44

When the company collects amounts and then gives the cash to the lender

Question 45

What is specific assignment

Answer 45

When the cash the company was supposed to collect goes straight to the lender *safer for the company

Question 46

How do you figure out the discount ammortized

Answer 46

Difference between your cash interest received and your interest revenue