Trade Receivables

Question 1

Calc for Allowance for doubtful accts

Answer 1

Ending AR x Allowance %

Question 2

AR balance Calc

Answer 2

Balance 1/1
Add: Credit sales for the year
Less: Collections from customers
Less: Accounts written off
Less: Sales returns

Question 3

Interest-bearing notes vs. Non-interest-bearing notes

Answer 3

Interest-bearing:
Int Rate = Market Rate
Present value = Face Value

Non-interest-bearing:
Int Rate < Market Rate
PV < Face Value
Discount on Notes Receivable

Question 4

Pledged Receivables

Answer 4

If AR is pledged, the company offering the AR in return for a loan; will retain control of the receivables

Question 5

Is more than one discount is given on a sale

Answer 5

Each discount is applied to the declining balance successively

Question 6

Pledged AR and cash is received for payment

Answer 6

We do not record against AR account. Only entry to be made is DR: Cash and CR: Loans Payable

Question 7

Increase cash flow for AR balance

Answer 7

Factor the receivables. Treat like sale: DR: Cash and CR: Receivable and record gain/loss

Question 8

Method of estimating uncollectible accounts that emphasizes asset valuation rather than income

Answer 8

Aging the receivables

Question 9

Discounting of Notes Rec

Answer 9

Step 1: Calc the full value of the note
~ Full value = Face Value of the note
~ Full value = Face Value + Accrued Interest (int bearing note)
Step 2: Calc time to maturity
Step 3: Calc interest charged by bank:
~ Int = Full value x interest rate x time to maturity / 365
Step 4: Calc proceeds
~ Proceeds = Full value - interest

Question 10

What effect on net income and assets if an allowance is written off (under allowance method)

Answer 10

No effect on net income or assets
DR: ADA
CR: AR