Chapter 7 - problems Flashcards

1
Q

P7-11 - Effects on the Income Statement

A
  • think about the items on an IS: expenses, losses, revenue and gains - a commision you pay to another company when they give you an advance for your A/R is an EXPENSE - a loss on a sale is shown on the IS - be aware of the amounts you receive the last day of the period - so no accrued interest
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

P7-9

  1. note receivable paid in ‘rate’ => principal + interest
  2. note receivable paid at the end and only the interest is due at certain intervals
  3. cash flow from notes
A
  1. be careful - the interest is not the same for all payments! It has to be calculated on the rest of the amount owing.

Daca due date e in mijlocul anului ai grija cand calculezi interest pt ca dupa due date, trebuie sa calculezi interest pt suma care a ramas de platit.

  1. the interest is the same (the disclosed %) as the amount owing doesn’t change
  2. make a table and take into calculation only the entries where the Cash account is involved. Think of the journal entries involved:
    dr. Cash
    cr. Note receivable
    dr. Cash
    cr. Interest income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

P7-9

  1. Non/Zero-interest bearing note
A
  1. No such thing. Time has money value

If the whole amount of the note is due in the future - that means some of it is interest.

So you can take the PV of the note and calculate the Interest for the # of months required.

  • use prevailing rate of interest
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Note receivable (at discount)

A
  • you record it at the face value (no discount on Notes Rec account)
  • dr. Cash 1,000
  • dr. Notes Rec 142
  • cr. Interest income 1,142 = the ‘cash’ part is calculate it in the first column at the market interest rate - ex: 10% instead of 12%
    *
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

P7-10 - factoring receivables

  1. finance charge
  2. amount withheld (ca un fel de garantie)
  3. recourse obligation
A
  1. = loss on the sale
  2. = Due from Factor acc - asset account! (that is taken temporary for eventualy returns and allowances)
  3. = libility acc : Recourse liability
    dr. Cash 36,000
    dr. **Due from Factor ** 2,400
    dr. Loss on Sale of Recevable 5,600 (4,000 + 1,600 recourse liability)
    cr. A/R 40,000
    cr. *Recourse Liability * 4,000
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

P7-10 - selling a receivable - journal entry

Acc Rec turnover ratio

IFRS same as ASPE

A
  1. Be careful if you have interest accrued on the Note Receivable!
    dr. Cash 50,904 (52,750 - 1,846)
    dr. Loss on Sale 1,846 (= 3,5 finance % )
    cr. Note Receivable 50,000
    cr. Interest receivable 2,750
  2. Credit sales/Avg acc receivable
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Allowance for Sale returns

A
  • is a contra-account to A/R => increases with a credit:
    dr. Sale returns and allowances (contra sales account)
    cr. Allowance for Sale returns
  • as returns occur:*
    dr. Allowance for Sale returns

cr. A/R

How well did you know this?
1
Not at all
2
3
4
5
Perfectly