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Accounting
How are attitudes regarding the financing of accounts receivable changing? Why do you think this is so?
(a) Distinguish between the practices of (1) Selling receivables and (2) Using receivables as collateral for borrowing.(b) Describe the accounting procedures to be followed in each case.
According to FASB Statement No. 140, what three conditions must be met to record the transfer of receivables with recourse as a sale?
Describe the 2-step test required under the provisions of IAS 39 to determine whether a receivable should be derecognized.
(a) When should a note receivable be recorded at an amount different from its face amount?(b) Describe the procedures employed in accounting for the difference between a note’s face amount and its
Explain what special accounting procedures are required when receivables are assigned as collateral for a secured loan.
What is meant by imputing a rate of interest? How is such a rate determined?
Credit sales for the year were $100,000. Collections on account were $88,000. Make the necessary summary journal entries to record this information.
On January 16, two credit sales were made, one for $300 and one for $400. Terms for both sales were 3/15, n/30. Cash for the $300 sale was collected on January 25; cash for the $400 sale was
Refer to Practice 7-2. Make all journal entries necessary to record both the sales and the cash collections. Use the net method of accounting for sales discounts.
On July 15, goods costing $7,000 were sold for $10,000 on account. The customer returned the goods before paying for them. Make the journal entry or entries necessary on the books of the seller to
Bad debt expense for the year was estimated to be $12,000. Total accounts written off as uncollectible during the year were $8,100. Make the necessary summary journal entries to record this
Because of the extreme deterioration in the financial condition of a customer, the customer’s account in the amount of $7,500 was written off as uncollectible on July 23. By November 1, the
Bad debt expense is estimated using the percentage-of-sales method. Total sales for the year were $500,000. The ending balance in Accounts Receivable was $100,000. Historically, bad debts have been
Bad debt expense is estimated using the percentage-of-accounts-receivable method. Total sales for the year were $600,000. The ending balance in Accounts Receivable was $200,000. An examination of
The following aging of accounts receivable is as of the end of the year:Historical experience indicates the following: Percentage UltimatelyAge of Account UncollectibleLess than 30 days .
Historically, warranty expenditures have been equal to 4% of sales. Total sales for the year were $650,000. Actual warranty repairs made during the year totaled $29,000. Make the necessary summary
The company offers a 1-year warranty to its customers. Warranty expenditures are estimated to be 4% of sales. Sales occur evenly throughout the year. The following information relates to the
Sales for the year were $400,000. The Accounts Receivable balance was $50,000 at the beginning of the year and $65,000 at the end of the year. Compute the average collection period using (1) The
Using the following information, compute the cash balance.Restricted deposits in foreign bank accounts . . . . . . . . . . . . . . . . . $ 5,200Cash overdraft . . . . . . . . . . . . . . . . . . .
The company received a bank statement at the end of the month. The statement contained the following:Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cammo Company sold receivables (without recourse) for $53,000. Cammo received $50,000 cash immediately from the factor (the company to whom the receivables were sold). The remaining $3,000 will be
Refer to Practice 7-15. Assume that the sale of the receivables was done with recourse. The estimated value of the recourse obligation is $1,300. Make the journal entry necessary on Cammo’s books
Refer to Practice 7-15. Assume that Cammo received the entire $53,000 in cash immediately. Also assume that the transfer of receivables did not satisfy the three conditions contained in SFAS No. 140.
As payment for services rendered, the company received an 18-month note on January 1. The face amount of the note is $3,000, and the stated rate of interest is 9%, compounded annually. The 9% rate is
As payment for services rendered, the company received a 24-month note on January 1. The face amount of the note is $1,000; the note is non-interest-bearing. The cash price of the services rendered
In exchange for land, the company received a 12-month note on January 1. The face amount of the note is $2,000, and the stated rate of interest is 12%, compounded annually. The 12% rate is equal to
As payment for services rendered, the company received a 36-month note on January 1. The face amount of the note is $1,000; the note is non-interest-bearing. There is no reasonable basis for
Bad Debts and the Direct MethodPrepare the Operating Activities section of the statement of cash flows using the directmethod.
Refer to Practice 7-22. Prepare the Operating Activities section of the statement of cash flows using the indirect method.
Classify each of the following items as: (A) Accounts Receivable, (B) Notes Receivable, (C) Trade Receivables, (D) Nontrade Receivables, or (E) Other (indicate nature of item). Because the
The following information from Tiny Company’s first year of operations is to be used in testing the accuracy of Accounts Receivable. The December 31, 2011, balance is $28,300.(a) Collections from
On November 1, Rosario Company sold goods on account for $7,000. The terms of the sale were 3/10, n/40. Payment in satisfaction of $3,000 of this amount was received on November 9. Payment in
On July 23, Louie Company sold goods costing $3,000 on account for $4,500. The terms of the sale were n/30. Payment in satisfaction of $3,000 of this amount was received on August 17. Also on August
Accounts Receivable of the Chalet Housing Co. on December 31, 2011, had a balance of $550,000. Allowance for Bad Debts had a $4,500 debit balance. Sales in 2011 were $3,450,000 less sales discounts
McGraw Medical Center has received a bankruptcy notice for Phillip Hollister. Hollister owes the medical center $1,350. The bankruptcy notice indicates that the medical center can’t expect to
Blanchard Company's accounts receivable subsidiary ledger reveals the following information:Blanchard Company's receivable collection experience indicates that, on average, losses have occurred as
The Intercontinental Publishing Company follows the procedure of debiting Bad Debt Expense for 2% of all new sales. Sales for four consecutive years and year-end allowance account balances were as
In 2010, Carver Electronics Co. began selling a new computer that carried a 2-year warranty against defects. Based on the manufacturer's recommendations, Carver projects estimated warranty costs (as
Hitech Appliance Company's accountant has been reviewing the firm's past television sales. For the past two years, Hitech has been offering an extended service contract on all televisions sold. With
Trend Industries Company reported the following amounts on its 2010 and 2011 financial statements:1. Compute the accounts receivable turnover for 2011.2. What is the average collection period during
Reporting Cash on the Balance Sheet1. Indicate how each of the following items below should be reported using the following classifications: (a) Cash, (b) Restricted cash, (c) Temporary investment,
Baltic Group, Inc., operates Baltic Group resorts in the United States, Mexico, the Caribbean, Asia, the South Pacific, and the Indian Ocean Basin. Baltic Group routinely receives payment in advance
Ortiz Company had the following cash balances at December 31, 2011:Undeposited coin and currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,500Unrestricted demand
Sterling Company’s bank statement for the month of March included the following information:Ending balance, March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What are the principal advantages to a lessee in leasing rather than purchasing property?
Lewiston Corporation’s bank statement for the month of April included the following information:Bank service charge for April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accounting department supplied the following data in reconciling the September30 bank statement for Clegg Auto.Ending cash balance per bank . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following information was included in the bank reconciliation for Bryant, Inc., for June. What was the total of outstanding checks at the beginning of June? Assume all other reconciling items are
On July 15, Mann Company sold $600,000 in accounts receivable for cash of $500,000. The factor withheld 10% of the cash proceeds to allow for possible customer returns or account adjustments. An
Zobell Corporation sells equipment with a book value of $8,000, receiving a non-interest-bearing note due in three years with a face amount of $10,000. There is no established market value for the
Abacus, Inc., purchased inventory costing $95,000. Terms of the purchase were 3/10, n/30. Abacus uses a perpetual inventory system. In order to take advantage of the cash discount, Abacus borrowed
The following selected information is provided for Lynez Company. All sales are credit sales and all receivables are trade receivables.Accounts receivable, January 1 net balance . . . . . . . . . . .
The following transactions affecting the accounts receivable of Wonderland Corporation took place during the year ended January 31, 2011:Sales (cash and credit) . . . . . . . . . . . . . . . . . . .
Stockton Company sold goods on account with a sales price of $70,000 on August 17. The terms of the sale were 2/10, n/30.Instructions:1. Record the sale using the gross method of accounting for cash
During 2011, Lacee Enterprises had gross sales of $247,000. At the end of 2011, Lacee had accounts receivable of $83,000 and a credit balance of $5,600 in Allowance for Bad Debts. Lacee has used the
Rainy Day Company, a wholesaler, uses the aging method to estimate bad debt losses. The following schedule of aged accounts receivable was prepared at December 31, 2011.Age of
Sound Portal Corporation sells stereos under a 2-year warranty contract that requires Sound Portal to replace defective parts and provide free labor on all repairs. During 2010, 1,290 units were sold
Lafayette Corporation, a client, requests that you compute the appropriate balance of its estimated liability for product warranty account for a statement as of June 30, 2011. Lafayette Corporation
The balance sheet for The Itex Corporation on December 31, 2010, includes the following cash and receivables balances.Current liabilities reported in the December 31, 2010, balance sheet
What are the principal advantages to a lessor in leasing rather than selling property?
Krebsbach Company is negotiating a loan with FIS Bank. Krebsbach needs $900,000. As part of the loan agreement, FIS Bank will require Krebsbach to maintain a compensating balance of 15% of the loan
Conceptually, what is the difference between a capital lease and an operating lease?
The cash account of Abstract, Inc., disclosed a balance of $16,348.82 on October 31. The bank statement as of October 31 showed a balance of $19,711.75. Upon comparing the statement with the cash
The following data were taken from Tyrone Tardieffs check register for the month of April. Tyrones bank reconciliation for March showed one outstanding check, Check No. 78 for
What is a bargain purchase option?
On July 1, 2011, McEnroe Company used receivables totaling $150,000 as collateral on a $100,000, 15% note from Standard One Bank. The transaction is not structured such that receivables are being
During its second year of operations, Shank Corporation found itself in financial difficulties. Shank decided to use its accounts receivable as a means of obtaining cash to continue operations. On
How is the lease term measured?
Freemont Factors provides financing to other companies by purchasing their accounts receivable on a nonrecourse basis. Freemont charges its clients a commission of 15% of all receivables factored.
On January 1, 2011, Rapid River Realty sold a tract of land to three doctors as an investment. The land, purchased 10 years ago, was carried on Rapid River’s books at a value of $210,000. Rapid
(a) What discount rate is used to determine the present value of a lease by the lessee?(b) By the lessor?
On January 1, 2011, Denver Company sold land that originally cost $400,000 to Boise Company. As payment, Boise gave Denver a $600,000 note. The note bears an interest rate of 4% and is to be repaid
Strata Company had a $275,000 balance in Accounts Receivable on January 1. The balance in Allowance for Bad Debts on January 1 was $68,000. Sales for the year totaled $2,100,000. All sales were
What criteria must be met before a lease can be properly accounted for as a capital lease on the books of the lessee?
1. At December 31, 2011, Kale Co. had the following balances in the accounts it maintains at First State Bank:Checking account No. 001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Olin Company currently makes only cash sales. Given the number of potential customers who have requested to buy on credit, Olin is considering allowing credit sales. What factors should Olin consider
In determining the classification of a lease, a lessor uses the criteria of the lessee plus two additional criteria. What are these additional criteria, and why are they included in the
Ultimate Corporation is a computer products supplier. Ultimate sells products to dealers who then sell the products to the end users. Most of the company’s competitors require dealers to pay for
What is the basic difference between an operating lease and a capital lease from the viewpoint of the lessee?
During the audit of accounts receivable of Montana Company, the new CEO, Joe Frisco, asked why the company had debited the current-year expense for bad debts on the assumption that some accounts
Jackie Wilson, manager of Expert Building Company, is a valued and trusted employee. She has been with the company from its start two years ago. Because of the demands of her job, she has not taken a
If an operating lease requires the payment of uneven rental amounts over its life, how should the lessee recognize rental expense?
Bruno Johnson, chief financial officer of Tollerud Company, has determined that Tollerud should keep on hand $35 million in cash or near-cash assets in order to maintain proper liquidity. Bruno is
Jonathan Mitchell is the accountant for Mantua Service Company. Due to heavy investments in lottery tickets, Jonathan found himself short of cash and decided to “borrow” funds from Mantua.
What amount should be recorded as an asset and a liability for capital leases on the books of the lessee?
Assume you are the treasurer for Fullmer Products Inc. and one of your responsibilities is to ensure that the company always takes available cash discounts on purchases. The corporation needs
Locate the 2007 financial statements for The Walt Disney Company on the Internet. Use the information contained in these statements to answer the following questions:1. Review The Walt Disney
Why do asset and liability balances for capital leases usually differ after the first year?
Use the financial information for Wal-Mart Stores, Inc., given on page 379, to answer the following questions:1. For the most recent year given, compute Wal-Marts average collection
From the notes of the 2007 annual report for Harley-Davidson, Inc., we find the following information relating to Allowance for Bad Debts:Balance at beginning of year . . . . . . . . . . . . . . . .
A capitalized lease should be amortized in accordance with the lessee’s normal depreciation policy. What time period should be used for lease amortization?
In July 1990, U.S. federal regulators ordered U.S. banks to write off 20% of their $11.1 billion in loans to Brazil and also 20% of their $2.9 billion in loans to Argentina. The action significantly
The use of the capital lease method for a given lease will always result in a lower net income than the operating lease method. Do you agree? Explain fully.
(a) How does a capital lease for equipment affect the lessee’s statement of cash flows? (b) How would the treatment on the statement of cash flows differ if the contract was identified as a
Distinguish a sales-type lease from a direct financing lease.
Unguaranteed residual values accrue to the lessor at the expiration of the lease. How are these values treated in a sales-type lease?
Under what circumstances are the minimum lease payments for the lessee different from those of the lessor?
Why is the principal portion of a lease receipt of a financing lease treated as an investment inflow on the lessor’s books while the principal portion of a lease payment is treated as a financial
Describe the specific lease disclosure requirements for lessees.
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