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
2
Q
P7-9
- note receivable paid in ‘rate’ => principal + interest
- note receivable paid at the end and only the interest is due at certain intervals
- cash flow from notes
A
- 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.
- the interest is the same (the disclosed %) as the amount owing doesn’t change
- 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
3
Q
P7-9
- Non/Zero-interest bearing note
A
- 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
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%
*
5
Q
P7-10 - factoring receivables
- finance charge
- amount withheld (ca un fel de garantie)
- recourse obligation
A
- = loss on the sale
- = Due from Factor acc - asset account! (that is taken temporary for eventualy returns and allowances)
- = 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
6
Q
P7-10 - selling a receivable - journal entry
Acc Rec turnover ratio
IFRS same as ASPE
A
- 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 - Credit sales/Avg acc receivable
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