FAR 10 - RECEIVABLES Flashcards
When a note is discounted (sold to a bank), what amount of contingent liability should be disclosed in the financial statements?
When a note is discounted, the entity is liable if the maker of the note does not redeem the note in full.
As such, a contingent liability in the amount of the maturity value of the note must be disclosed.
When a note receivable is sold with recourse, what happens to the notes receivables accounts in the journal entry?
the receivable is reclassified
“notes receivables” is credited for the face value and “notes receivables - discounted” is debited for the face value
When a note receivable is sold with recourse, how are the proceeds classified?
When a note receivable is sold with recourse, it is treated as if the entity borrowed funds from the bank, using the receivable as collateral.
The proceeds are recognized as a liability
