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Exam 7: Cash and Receivables

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Question 71

Multiple Choice

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In deciding whether financing with receivables is a secured borrowing or a sale under U.S. GAAP, the critical element is the extent to which:

A) The transferee has received substantially all the risks and rewards of ownership.
B) The age of the receivables transferred differs from the average age of the receivables.
C) The transferor of the receivable surrenders control over the assets transferred.
D) The transferee relies on funds from the transferor to maintain operations.

E) C) and D)
F) B) and D)

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Question 72

Multiple Choice

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False Value Hardware began 2018 with a credit balance of $32,000 in the allowance for sales returns account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be returned. During 2018, customers returned merchandise for credit of $28,000 to their accounts. -False Value Hardware's 2018 income statement would report net sales of:

A) $622,000.
B) $607,000.
C) $646,000.
D) $611,000.

E) A) and C)
F) None of the above

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Question 73

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On March 12, 2018, Admiral Electronics sold 20 fax machines to Cool Stuff Co. for $10,000, subject to terms 2/10, n/30. Admiral uses the gross method of accounting for sales discounts. Required: 1. Prepare the journal entry to record the sale. 2. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on March 20, 2018. 3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on April 5, 2018.

The petty cash fund of Western Glass Company contained the following items on November 30, 2018: The petty cash fund was established on November 1, 2018, with a transfer of $250 from cash to the petty cash account. Required: Prepare the journal entries to establish the petty cash account and to replenish the fund at the end of November.

Peecher accepted a three-year, noninterest-bearing note in exchange for merchandise sold. Which of the following is true?

Cash may not include:

Last year, Simpson Company had a receivables turnover ratio of 12. Homer, Simpson's president, was delighted when the ratio went to 18 for this year. This year, Simpson's long-standing credit terms of net 30 were changed to net 10. Should Homer be happy? Explain.

Ireland Corporation obtained a $40,000 note receivable from a customer on June 30, 2018. The note, along with interest at 6%, is due on June 30, 2019. On September 30, 2018, Ireland discounted the note at Cloverdale bank. The bank's discount rate is 10%. What amount of cash did Ireland receive from Cloverdale Bank?

Important elements of an internal control system for cash disbursements include each of the following except:

Collection of accounts receivable that previously have been written off results in an increase in cash and an increase in:

Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2018. The notes included: Note A: Dated 5/31/2018, principal of $120,000 and interest due 3/31/2019. Note B: Dated 7/1/2018, principal of $200,000 and interest at 8% annually, due on 4/1/2019. Frankenstein had accrued a total of $14,400 interest receivable from these notes in its 12/31/2018 balance sheet. - The annual interest rate on Note A is closest to:

On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for cash discounts. What entry would Cherokee make on November 17, assuming the correct payment was received on that date?

Cash equivalents do not include:

Which of the following does not reduce the balance in accounts receivable?

Under the CECL approach used in U.S. GAAP, impairments are only recognized for losses that occur more than a year in the future when a receivable has deteriorated in credit quality.

In a bank reconciliation, adjustments to the bank balance could include adding deposits in transit and deducting bank service charges.

Accounts receivable are normally reported at the:

Guido Properties owes First State Bank $60 million under a 7% note with two years remaining to maturity. Due to financial difficulties of Guido, the previous year's interest ($4.2 million) was not received. The bank agrees to settle the note receivable and accrued interest receivable in exchange for land having a fair value of $44 million. Required: Compute the loss on troubled debt restructuring that the bank would record.

Securitization of receivables is a type of secured borrowing.

Sales returns and cash discounts are both examples of variable consideration that must be accounted for when receivables are recognized.