Question 1

Factoring accounts receivable
On April 1, Morocco Ltd. factored $500,000 of accounts receivable with Kenya Finance Corp. on a without recourse basis. Under the arrangement, Morocco was to handle disputes concerning service, and Kenya Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Kenya Finance assessed a finance charge of 5% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts.
Instructions
a) Prepare the journal entry required on Morocco's books on April 1.
b) Prepare the journal entry required on Kenya Finance's books on April 1.
c) Instead, assume Morocco factors the $500,000 of accounts receivable with Kenya Finance on a with recourse basis. The recourse provision has a fair value of $12,000. Prepare the journal entry required on Morocco's books on April 1.

Accepted Answer

The answer of Factoring accounts receivable
On April 1, Morocco Ltd....

Question 2

Accounts receivable assigned
Prepare journal entries for Tanzania Inc. for:
a) Accounts receivable of $700,000 that were assigned to Chad Finance Co. by Tanzania as security for a loan of $580,000. Chad charged a 4% commission on the value of the accounts receivable; the interest rate on the note is 11%.
b) During the first month, Tanzania collected $300,000 on assigned accounts. As well, Tanzania wrote off a $1,100 assigned account as a bad debt.
c) Tanzania paid Chad the amount collected plus one month's interest on the note.

Accepted Answer

The answer of Accounts receivable assigned
Prepare journal entries for Tanzania...

Question 3

Note with fair value not equal to cash consideration
On January 1, 2020, Tanzania Corp. lent $50,000 to its CEO, interest-free. However, the loan is repayable in five instalments, each December 31, until paid. The market rate for similar loans (with similar credit risk) is 4%.
Instructions
a) Calculate the present value (fair value) of this loan (round to the nearest dollar).
b) Prepare the journal entry to record this transaction.

Accepted Answer

The answer of Note with fair value not equal to...

Question 4

Presentation and disclosure of receivables
When financial statements are prepared, the presentation of and disclosures related to receivables have to be addressed. What is the objective of these disclosures?

Accepted Answer

The answer of Presentation and disclosure of receivables
When financial statements...

Question 5

Secured borrowings vs. factoring of receivables
Explain the difference between secured borrowings and factoring.

Accepted Answer

The answer of Secured borrowings vs. factoring of receivables
Explain the...

Question 6

Reconciliation of cash account
Bestway Corp.’s book balance of the cash account shows an unadjusted balance of $72,000 before reconciliation. The following data was also available:
1. The bank statement does not include a deposit of $3,100 made on the last day of the month.
2. The bank statement shows a collection of a note receivable by the bank of $1,400 and a customer's cheque for $420 was returned because it was NSF.
3. A customer's cheque for $450 was recorded on the books as $540.
4. A cheque written for $185 was recorded as $851.
Instructions
Calculate the correct balance in the cash account.

Accepted Answer

The answer of Reconciliation of cash account
Bestway Corp.’s book balance...

Question 7

Bank reconciliations Benson Plastics Company deposits all receipts and makes all payments by cheque. The following information is available from the cash records: $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $MARCH 31 BANK RECONCILIATION Balance per bank.....................................$26,746 Add: Deposits in transit............................2,100 Deduct: Outstanding cheques..................(3,800) Balance per books....................................$25,046 Month of April Results $\begin{array}{c} \begin{array}{lll} \ \text {Balance April 30}\ \text {April deposits}\ \text {April cheques}\ \text {April note collected (not included in April deposits)}\ \text {April bank service charge}\ \text {April NSF cheque of a customer returned by the bank}\ \text {(recorded by bank as a charge)} \end{array} \begin{array}{lll} \underline{\text{Per Bank}}\ \$ 27,995 \ 11,784\ 11,100\ 3,000\ 35\ \ 900 \end{array} \begin{array}{lll} \underline{\text{Per Books}}\ \$ 27,355 \ 13,889 \ 10,080 \ -0- \ -0-\ \ -0 - \end{array} \end{array}$ Instructions a)Calculate the following amounts at April 30: $\quad$1.Deposits in transit $\quad$2.Outstanding cheques b)What is the April 30 adjusted cash balance? Show all work.

Accepted Answer

The answer of Bank reconciliations
Benson Plastics Company deposits all receipts...

Question 8

Entries for bad debt expense
Nairobi Corp.'s unadjusted trial balance includes the following balances:
 $\begin{array}{llcc}
&  \text {Dr.  } &  \text { Cr. }  \
 \text { Accounts receivable. } &\$150,000&\
 \text { Allowance for doubtful accounts . } &&\$3,500\
 \text {Sales (all on credit)  } &&720,000\
 \text {  Sales returns and allowances} &30,000&\

\end{array}$
 Instructions 
a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (1) 5% of gross accounts receivable and (2) 2% of net sales.
b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $3,500 instead of a credit balance.

Accepted Answer

The answer of Entries for bad debt expense
Nairobi Corp.'s unadjusted...

Question 9

Control of petty cash
Under an imprest petty cash system, the petty cash custodian has a significant amount of responsibility. Describe two (2) procedures a company could put in place to obtain more complete control over the petty cash fund.

Accepted Answer

The answer of Control of petty cash
Under an imprest petty...

Question 10

ASPE/IFRS Differences
While most requirements set out under ASPE are not likely to change in the short term, what is one area open to change? Explain.

Accepted Answer

The answer of ASPE/IFRS Differences
While most requirements set out under...

Question 11

Record note receivable On January 1, 2020, Jumpstart Corp. makes a loan to TryStar Company and receives a $100,000, five-year note bearing interest at 4% semi-annually The market rate for similar loans (with similar credit risk) is 6%.
Instructions
A) Calculate the present value (fair value) of this loan (round to the nearest dollar).
B) Prepare the journal entry to record this transaction.

Accepted Answer

The answer of Record note receivable On January 1, 2020,...

Question 12

Bad debt expense
The following account balances were found for Jetson Corp. at the beginning of its fiscal year, January 1, 2020:
 Accounts Receivable ...................................................$\$ 1,240,250$
Allowance for Doubtful Accounts........................................19,220
Sales for the year were $8,100,000, of which 60% was on credit, and sales returns were $146,000. Cash collections, excluding recoveries, were $5,416,000. Jetson had also written off $62,500, of which half was later recovered and collected. The company's credit and collection manager has estimated that 6% of outstanding accounts receivable are uncollectible.
Instructions
Calculate the bad debt expense for the year and record the appropriate journal entry.

Accepted Answer

The answer of Bad debt expense
The following account balances were...

Question 13

Amortization of discount under the straight-line and effective interest methods
On January 1, 2020, Ethiopia Corporation receives a four-year, $50,000, zero-interest-bearing note in payment of goods sold. The present value of the note equals the agreed upon sales price of $32,936.55. Ethiopia is a privately held company and follows ASPE.
Instructions
a) Assuming Ethiopia uses the straight-line method to amortize the note's discount, prepare the journal entry to record the sale on January 1, and the interest accrual on December 31, 2020.
b) Assuming Ethiopia uses the effective interest method to amortize the note's discount, prepare the journal entry to record the sale on January 1, and the interest accrual on December 31, 2020.

Accepted Answer

The answer of Amortization of discount under the straight-line and...

Question 14

Reasons for selling receivables
List three reasons why a business might sell its receivables to another party.

Accepted Answer

The answer of Reasons for selling receivables
List three reasons why...

Quiz 7: Cash and Receivables

Presentation and disclosure of receivables When financial statements are prepared, the presentation of and disclosures related to receivables have to be addressed. What is the objective of these disclosures?

Secured borrowings vs. factoring of receivables Explain the difference between secured borrowings and factoring.

Control of petty cash Under an imprest petty cash system, the petty cash custodian has a significant amount of responsibility. Describe two (2) procedures a company could put in place to obtain more complete control over the petty cash fund.

ASPE/IFRS Differences While most requirements set out under ASPE are not likely to change in the short term, what is one area open to change? Explain.

Reasons for selling receivables List three reasons why a business might sell its receivables to another party.