Receivables

Question 1

Bank Statement Balance

Answer 1

+ Deposits in Transit

-Outstanding Checks

Question 2

Allowance for Doubtful Accounts

Answer 2

D Bad Debt Expense 
	C Allowance for doubtful accounts
Write off Allowance: 
D Allowance for Doubtful Accounts
	C Accounts Receivable 
Accounts previously Written off: 
D Accounts Receivable
	C Allowance for Doubtful accounts 
D Cash 
C Accounts Receivable

Question 3

Notes Receivable - Discounting

Answer 3

- Sold = discounted
		○ Without Recourse 
			§ Final sale 
			§ Difference between net proceeds received and carrying value of note is recognized as a gain or loss
		○ With Recourse
			§ Not a final sale, more a loan
			§ One last additional credit of estimated recourse liability must be added to entity 
	- Recording Transfer of note: 
	- D Cash 
	- D Loss on Sale of Note
		○ C Notes Receivable
		○ C Interest Receivable

Question 4

Effective Interest Rate

Answer 4

• Determined in the market place, not the bond contract
  
  • Apply rate to the net proceeds received, (ex - after loan fees, issuance costs etc) not the face amount
  • D Accrued Interest Receivable
    C Interest Income

Question 5

FASB ASC 310

Answer 5

• Notes receivable stating either no interest or unreasonably low interest rate be reported at their present value computed using an appropriate interest rate if original maturity of note exceeds one year
  If it matures in less than one year, just use the face amount of the note

Question 6

Note Receivable Terms

Answer 6

Present Value of Note
- Based on the yield percentage
Annual Payments
- Based on the face value of the note percentage
Discount
- Yield percentage is higher than the Face value percentage
Premium
Yield Percentage lower than face value percentage

Question 7

Loan Impairment - Measurement Techniques

Answer 7

• PV of expected future cash flows from loan discounted at loans original effective rate
  
  • Amount the loan could be sold for
  • Net realizable value of the available loan collateral
    Difference between loan’s carrying value and its fair value is the loan impairment

Question 8

Recovery of Accounts Receivable

Answer 8

• Both an increase and a decrease, so they net out to nothing
  It won’t have an effect overall

Question 9

Customary Trade Terms - Note Receivable

Answer 9

Current receivables acquired as a result of customary trade terms should be reported at their face value

Question 10

Effect of Write off of AR

Answer 10

• No impact on Net Income and Total assets
  
  • When account is written off it Is taken out of both the A
  • At the same time, and bad debt expense has already been taken as an estimated expense when the sale is made
    Write off entry does not affect expenses, and leaves net realizable amount of AR the same

Question 11

Pledging

Answer 11

• AR is used as collateral for loan

The borrower will continue to collect the receivables and apply the collection to the loan balance