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Exam 7: Cash and Receivables

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Question 1

True/False

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

A) True
B) False

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False

Question 2

Multiple Choice

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If a company adopts an accounts receivable factoring program, and accounts for the factoring as a sale of receivables, which of the following is true in the period the company starts the program (all else equal) ?

A) The accounts receivable balance will increase.
B) Cash flow from operations may increase.
C) A retroactive restatement is necessary due to a change in accounting principle.
D) The factoring arrangement needs to be with a consolidated entity to qualify for sale accounting.

E) A) and B)
F) B) and C)

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Question 3

Multiple Choice

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Rahal's adjusted allowance for uncollectible accounts at December 31, 2013, is:

A company's investment in receivables is affected by several related variables. Give an example of this interrelationship.

Describe some key elements of an internal control system for cash.

What bad debt expense would Dinty report in its first-year income statement?

Under IFRS, accounts receivable impairments due to troubled debt restructuring are not recognized.

You have recently been hired as the assistant controller for Clayton, Inc., a large, publicly held manufacturing company. Your immediate superior is the controller who, in turn, is responsible to the chief financial officer. The controller has assigned the task of preparing the year-end adjusting entry for bad debts to you. The allowance for uncollectibles accounts has a credit balance of $86,000 before the year-end adjustment. Your analysis indicates that an appropriate balance for the allowance account is $210,000. After showing your analysis to the controller, she tells you to adjust the allowance account to $310,000. Tactfully, you ask the controller for an explanation for the amount and she tells you, "We are having a really good year. Let's bump up the allowance." Required: Discuss the ethical dilemma you face. Consider your options and responsibilities along with the possible consequences of any action you might take.

On June 14, 2013, Rumsfeld Company sold 100 air-conditioning units to Powell Heating and Cooling. The units list for $600 each, but Powell was granted a 25% trade discount. All of Rumfeld's sales are subject to terms 2/10, n30. Rumsfeld 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 June 22, 2013. 3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on July 10, 2013.

What kind of account is the provision for doubtful accounts in HP's financial statements?

A company's investment in receivables is influenced by several variables, including:

Using the balance sheet approach, bad debt expense is an indirect result of estimating the net realizable value of accounts receivable.

In a bank reconciliation, adjustments to the book balance could include adding or subtracting company errors.

For each posted entry in the Allowance account during 2013, indicate the remaining entry(ies) in other accounts.

Hazelton Manufacturing prepares a bank reconciliation at the end of every month. At the end of May, the general ledger checking account showed a balance of $1,360 and the bank statement showed a bank balance of $1,445. Outstanding checks totaled $350 and deposits in transit were $150. The bank statement listed service charges of $30 and NSF checks totaling $85. The corrected cash balance is:

What is the correct entry to record the note?

Which of the following is true about accounting for a troubled debt restructuring?

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.

In addition to sales revenue of $2,120,000, the 2013 income statement will also include interest revenue and bad debt expense. Interest revenue

What entry would Cherokee make on December 10, assuming the correct payment was received on that date?