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Exam 7: Cash and Receivables

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Question 21

True/False

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The "income statement approach" and the "direct write-off method" are two ways to refer to the same method for recognizing bad debts expense.

A) True
B) False

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Question 22

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The Salamander Company has evaluated its receivables, and has identified the following possible impairments: • Note #1 has recently deteriorated in credit quality. For Note #1, Salamander estimates the present value of credit losses occurring in the next twelve months is $50,000, and the present value of credit losses occurring after twelve months is $20,000. • Note #2 has not deteriorated in credit quality. For Note #2, Salamander estimates the present value of credit losses occurring in the next twelve months is $5,000, and the present value of credit losses occurring after twelve months is $10,000. - If Salamander is reporting under ASU 2016-13 and therefore using the CECL model, it would recognize an impairment loss of:

A) $50,000.
B) $55,000.
C) $75,000.
D) $85,000.

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

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Question 23

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COSO defines internal control as a process, affected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in:

Harvey's Wholesale Company sold supplies of $46,000 to Northeast Company on April 12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting for cash discounts. What entry would Harvey's make on April 12?

Calistoga Produce estimates bad debt expense at ½% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,650, respectively, at December 31, 2017. During 2018, Calistoga's credit sales and collections were $315,000 and $319,000, respectively, and $1,720 in accounts receivable were written off. - Calistoga's final balance in its allowance for uncollectible accounts at December 31, 2018, is:

When you use an aging schedule approach for estimating uncollectible accounts:

As of January 1, 2018, Barley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on experience, 2% of Farley's gross accounts receivable have been uncollectible. During 2018, Farley wrote off $650,000 of accounts receivable. Barley's gross accounts receivable as December 31, 2018 is $18,000,000. -How much bad debts expense should Barley record for 2018?

Under IFRS, transfer of risks and rewards of ownership, rather than transfer of control, is the primary factor determining whether a factored receivable can be treated as sold rather than as part of a secured borrowing.

The balance in accounts receivable at the beginning of 2018 was $300. During 2018, $1,600 of credit sales were recorded. If the ending balance in accounts receivable was $250 and $100 in accounts receivable were written off during the year, the amount of cash collected from customers during 2018 was:

Harvey's Wholesale Company sold supplies of $46,000 to Northeast Company on April 12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting for cash discounts. What entry would Harvey's make on June 10, assuming the customer made the correct payment on that date?

As of January 1, 2018, Barley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on experience, 2% of Farley's gross accounts receivable have been uncollectible. During 2018, Farley wrote off $650,000 of accounts receivable. Barley's gross accounts receivable as December 31, 2018 is $18,000,000. -In its December 31, 2018, balance sheet, what amount should Farley report as allowance for uncollectible accounts?

Wilson Company had the following cash balance items listed in its trial balance at 12/31/2018: $\begin{array}{lr}\text {Peters on Savings and Loan: }&\$50,000\\\text {Right Bank: }&(5,000) \\\text {Clinton County Trust Bank: }&10,000\\\end{array}$ If Wilson reports under U.S. GAAP, its 12/31/2018 balance sheet would show what cash balance?

The following note disclosure appeared in a recent annual report of Halliburton: Our receivables are generally not collateralized. Included in notes and accounts receivable are notes with varying interest rates totaling $12 million at December 31. At December 31, 39% of our consolidated receivables related to our United States government contracts, primarily for projects in the Middle East -Explain the reason that Halliburton indicates that its receivables include notes with varying interest rates totaling $12 million at December 31. What significance does this have to the reader?

Frasquita acquired equipment from the manufacturer on 6/30/2018 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $550,000 on 4/30/2019 to satisfy the obligation in full. - If Frasquita accrued interest of $15,000 on the note in its 2018 year-end financial statements, what would the manufacturer record in its 2018 income statement for this transaction?

NOTE 5: ALLOWANCE FOR LOAN LOSSES The allowance for loan loss is maintained at a level to absorb probable losses inherent in the loan portfolio. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged off, and reduced by charge-offs on loans. The following is a summary of the changes in the allowances for loan losses for three years: Winchester also reported (in thousands) in its comparative balance sheet that it held Loans receivable, net, of $6,869,11 and $6,819,209 at December 31, 2018, and December 31, 2017, respectively. -Is there any evidence in Winchester's disclosures above that are consistent with earnings management?

The Nile Group is owed $1,000,000 by Scorpion Enterprises under an 8% note with three years remaining to maturity. The prior year of interest was unpaid. Nile estimates that it is probable that it will only receive amounts equal to a present value of $880,000. The journal entry that O'Hara would make to record this transaction would include an impairment loss of:

In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,000. During the year, Dinty wrote off $32,000 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,200,000, and cash collections from credit customers totaled $1,950,000. - In Dinty's adjusting entry for bad debts at year-end, which of these would be included?

For 2018, Rahal's Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2017. During 2018, Rahal's credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off. - Rahal's 2018 bad debt expense is:

-Is there any evidence in HP's disclosures above that are consistent with earnings management?

Using the balance sheet approach, bad debt expense is an indirect result of estimating the appropriate balance for the allowance for uncollectible accounts.