F4 - Working Capital and it's components

Question 1

Pledging

Answer 1

company pledges (assigns) receivables in return for a loan
No adjustment, only disclosure
- original owner of A/R retains title of the A/r and control

Question 2

How does write off of accounts accts receivable affect net income and total assets under allowance method?

Answer 2

No effect on both. Both accounts are asset accounts, so no effect on net income or assets.

Question 3

Paying the equivalent of three months of sales taxes on projected retail sales in satisfaction of the licensing requirement that is fully refundable after five years is a _____

Answer 3

noncurrent asset
Because the transaction is expected to result in the realization of cash in the future, the payment is an asset. It is a noncurrent asset because the cash will be realized at a time beyond the normal operating cycle or one year.

Question 4

deposits received from customers and unearned rent represent?

Answer 4

liabilities

Question 5

Freight in versus freight out

Answer 5

freight in is part of inventory - it is part of getting inventory ready for intended use so added in to purchases to find cogs

Freight out - selling expense

Question 6

transportation to consignee

Answer 6

including in computing COGS. Add freight in, transportation costs to consignee, and subtract ending inventory held by consignee

Question 7

Perpetual life

Answer 7

as units are sold, go back and use previous amounts to find COGS.