Chapter 7

Question 1

When and how are Accounts Receivable Recognized

Answer 1

the entity is party to the receivable contract when it has a legal claim to receive cash or other financial assets; usually, when a sale is recognized a receivable (or cash) is recognized; discounts and interest may complicate recognition of receivables, which should be recognized at their fair value; short-term receivables are recognized at their net realizable value (estimate)

Question 2

Account for the Sale of Receivables

Answer 2

Cash [debit]
Due from Factor [debit]
Loss on Disposal of Receivables [debit]
Accounts Receivable [credit]
Recourse Liability [credit]

Question 3

Account for an Increase in Estimated Returns Adjustment at the End of the Period

Answer 3

IFRS:
Sales Revenue [debit]
Refund Liability [credit]
ASPE:
Sales Returns and Allowances [debit]
Allowance for Sales Returns and Allowances [credit]

Question 4

Account For Issuance and Receipt of Note Receivable

Answer 4

Issuance (IFRS/ASPE):
Note Receivable [debit at PV]
Cash [credit at PV of note]

Amortization/Interest Received (IFRS/ASPE):
Note Receivable [debit]
Interest Income [credit]

Receipt (IFRS/ASPE):
Cash [debit]
Note Receivable [credit at FV or amortized cost]
Interest Income [credit difference between cash and note receivable]

*note that ASPE allows straight-line method of amortization but IFRS requires effective interest method
*the current portion of the note receivable on the SFP is the interest earned on the note at the date of the SFP and any principal amount that will be received in the next operating cycle