Podcast
Questions and Answers
Should a savings account be included in the cash balance presented on the balance sheet?
Should a savings account be included in the cash balance presented on the balance sheet?
What balance sheet treatment should postdated checks receive?
What balance sheet treatment should postdated checks receive?
If a company sells $20,000 of merchandise with terms 2/10, when would the customer need to pay to take advantage of the discount?
If a company sells $20,000 of merchandise with terms 2/10, when would the customer need to pay to take advantage of the discount?
What is the equivalent annual interest rate for a 2% discount over 20 days?
What is the equivalent annual interest rate for a 2% discount over 20 days?
Signup and view all the answers
What method is considered superior for recording receivables?
What method is considered superior for recording receivables?
Signup and view all the answers
Accounts Receivable is not reported on the balance sheet.
Accounts Receivable is not reported on the balance sheet.
Signup and view all the answers
What was the debit balance of Karras Inc.'s accounts receivable at the end of 2016?
What was the debit balance of Karras Inc.'s accounts receivable at the end of 2016?
Signup and view all the answers
What is the provision for doubtful accounts for Master Company in 2016?
What is the provision for doubtful accounts for Master Company in 2016?
Signup and view all the answers
What term describes the customer's obligation to pay the note signed for a credit sale?
What term describes the customer's obligation to pay the note signed for a credit sale?
Signup and view all the answers
On December 11, 2016, Hooper Inc. made a credit sale requiring Marshall to sign a ______.
On December 11, 2016, Hooper Inc. made a credit sale requiring Marshall to sign a ______.
Signup and view all the answers
What is the proceeds from the sale of an $8,000, 60-day, non-interest-bearing note after 15 days at 12% discount?
What is the proceeds from the sale of an $8,000, 60-day, non-interest-bearing note after 15 days at 12% discount?
Signup and view all the answers
Study Notes
Cash Balance Inclusion
- NSF checks not included, categorized under Accounts Receivable.
- Savings account included as cash.
- Compensating balance excluded, classified as Current or Noncurrent Asset.
- Postdated checks excluded, also logged under Accounts Receivable.
- IOUs excluded, fall under Accounts Receivable.
- Cash on hand included as cash.
- Cash in sinking fund excluded, recorded as a Long-term Investment.
- Travel advance not included, classified as a Prepaid Expense.
- Bank drafts included as cash.
- Prepaid debit cards included as cash.
Sales and Collections
- Lynch Incorporated sold $20,000 merchandise with terms 2/10, n/EOM on December 1, 2016.
- Collections of $13,000 occurred on December 11, 2016, and an additional $6,000 on December 31, 2016.
- To utilize the 2% discount, a payment must be made 20 days earlier, equivalent to an annual interest rate of 36.5%.
Accounts Receivable and Interest Rates
- Eastman Corporation sold merchandise with a list price of $12,000 on February 1 with terms 1/10, n/30.
- Payment for $7,000 was made on February 10, with the remaining balance collected by March 1.
- A 1% discount results in an annual interest rate of 18.25%, emphasizing the importance of recording receivables at net prices to avoid overstated figures.
Sales Returns and Allowances
- Towbin Products sold merchandise on December 1, 2016, for $7,000, estimating returns at 4% of sales.
- A return of $200 was credited on December 22, 2016.
- Accounts Receivable and Return liability are recorded on the balance sheet to avoid inflated sales revenue.
Accounts Receivable Summary
- Karras Inc. had a debit balance of $141,120 in accounts receivable at the end of 2016.
- Credit balance for allowance for doubtful accounts started at $4,350 and ended at $9,420.
- Total credit sales for the year were $1,530,000, with collections of $1,445,700 and bad debt expenses recorded at $83,750.
- Accounts Receivable written off totaled $78,680; beginning balance was $135,500.
Allowance for Doubtful Accounts
- Master Company began 2016 with a $400,000 credit balance in the Allowance for Doubtful Accounts.
- The provision for doubtful accounts for 2016 was estimated at 0.7% of total credit sales of $50,000,000, amounting to $350,000.
- Total write-offs during 2016 were $410,000, resulting in a year-end balance of $340,000.
Notes Receivable Transactions
- On December 11, 2016, Hooper Inc. made a credit sale of $36,000 to Marshall Company, requiring a signed 60-day note.
Proceeds from Sale of Notes Receivable
- Various customer notes were sold without recourse, needing calculations for each:
- Non-interest bearing note of $8,000 sold after 15 days at 12% yielded proceeds of $7,880.
- 12% note of $9,000 sold after 30 days produced proceeds of $9,072.90.
- 10% note of $6,000 sold after 30 days resulted in proceeds of $6,027.
- 12% note of $10,000 sold after 45 days gave proceeds of $10,075.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
