CMA Unit 2

Question 1

How does GAAP treat Direct write-off method?

Answer 1

Direct write-off method is not allowed under GAAP

Question 2

How is current account receivable recorded?

Answer 2

@ Net Realizable Value

Question 3

How is non-current account receivable recorded?

Answer 3

@ Net Present Value of future cash flow expected to be collected

Question 4

What kind of account is Allowance for Uncollectible Account?

Answer 4

AFUA - contra account to A/R; therefore increase in Bad Debt expense increase in AFUA decreases A/R

Question 5

What are the 2 common methods of measuring bad debt expense and the allowance for uncollectible accounts?

Answer 5

1. Percentage-of-sales

2. Percentage-of-receivables

Question 6

What’s the JE for writing off account receivables?

Answer 6

DR. Allowance for Uncollectible account

CR. Account Receivable

Question 7

What’s the JE for a customers pay on an account previously written off?

Answer 7

DR. Cash

CR. Allowance for Uncollectible account

Question 8

What is factoring?

Answer 8

It’s a transfer of receivables to a 3rd party who would assumes the responsibility of collection

Question 9

When is factoring considered as a sale?

Answer 9

When transferor surrenders control

Question 10

Define Factoring without recourse

Answer 10

• transferee assumes risk & rewards
• sale is final
• seller has no liability towards seller
• seller doesn’t record receivables on their books

Question 11

Define Factoring with recourse

Answer 11

• seller may need to mkae payment to the transferee or buy back receivables
• might not quality as a sale
• receivables remain on seller’s books