Receivables Flashcards
When the allowance method of recognizing bad debt expense is used, the allowance would decrease when a(an)
C. Specific uncollectible account is written off.
This transaction reinstates (increases) the allowance that was removed when the account was originally written off. The entries are:
The account previously written off is collected.
Dr AR and CR Allowance
Dr Cash and Cr AR
On December 1, 2005, Tigg Mortgage Co. gave Pod Corp. a $200,000, 12% loan.
Pod received proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,450, beginning January 1, 2006. The repayments yield an effective interest rate of 12% at a present value of $200,000 and 13.4% at a present value of $194,000.
What amount of accrued interest receivable should Tigg include in its December 31, 2005 balance sheet?
The term “accrued interest receivable” refers to the cash amount of interest due. The cash amount of interest due is based on the contractual interest rate and face value. The loan origination fee is a way of increasing the effective interest but it does not affect the cash interest component. The $2,000 accrued interest = (.12)(1/12)($200,000).
