FARE. Receivables

Question 0

What is the formula for amortizing discount or premium on receivables?

Answer 0

Imputed (ie., effective) interest rate X carrying value of receivables (at beginning of period) less cash interest paid ( Face amount X standard rate)

Question 1

What is the result when discount on receivables is amortized?

Answer 1

Additional interest income

Question 2

What is the sale of Accounts Receivable called?

Answer 2

Factoring

Question 3

True or false question

When discounting a note receivable, a contingent liability exist until paid by the maker.

Answer 3

True
(Unless discounted without recourse)
(equal to maturity value of the note)

Question 4

What is the formula to calculate the proceeds when discounting a note receivable?

Answer 4

1. Calculate maturity value
2. Calculate discount (maturity value X discount rate X discount period)
3. Subtract “2” from “1”

Question 5

When using the percentage of aged receivables method, what is the product of the receivable and the proportion of the receivable not expected to be collected?

Answer 5

The product is the balance of the allowance for doubtful accounts

Question 6

When using the percentage of sales method, what is the product of credit sales and the percentage of sales not expected to be collected?

Answer 6

The product is bad debt expense for the period.