Question 1

The transferor is considered to have surrendered control over its receivables if:

Accepted Answer

All of these conditions (A, B, and C) must be met for the transferor to be considered to have surrendered control over its receivables. This includes the isolation of the transferred assets from the transferor, the right of each transferee to pledge or exchange the assets, and the transferor not maintaining effective control over the transferred assets.

Question 2

In deciding whether financing with receivables is a secured borrowing or a sale under U.S.GAAP,the critical element is the extent to which:

Accepted Answer

The critical element in deciding whether financing with receivables is a secured borrowing or a sale under U.S. GAAP is whether the transferor of the receivable surrenders control over the assets transferred. If the transferor retains control, it is considered a secured borrowing. If the transferee has unconditional ownership and control over the assets, it is considered a sale. Factors such as the age of receivables transferred or the transferee's reliance on funds from the transferor are not as critical in making this determination.

Question 3

What is the correct entry to record the note

Accepted Answer

The answer of What is the correct entry to record...

Question 4

What amount of interest revenue would Frankenstein earn on these notes during 2017?

Accepted Answer

Without specific details about the notes, such as principal amount, interest rate, and time period, it is impossible to calculate the interest revenue, making the correct choice "None of these answer choices are correct."

Question 5

Long-term notes receivable issued for noncash assets at an unrealistically low interest rate will be:

Accepted Answer

When a long-term note receivable is issued for noncash assets at an unrealistically low interest rate, the note must be discounted at an imputed interest rate to reflect the fair value of the asset received. This imputed interest rate is the market rate of interest for a note of similar terms and risk. Therefore, the correct choice is A.

Question 6

Baker Inc.acquired equipment from the manufacturer on 10/1/2016 and gave a noninterest-bearing note in exchange.Baker is obligated to pay $918,000 on 4/1/2017 to satisfy the obligation in full.If Baker accrued interest of $9,000 on the note in its 2016 year-end financial statements,what is its imputed annual interest rate?

Accepted Answer

To find the imputed annual interest rate, we need to use the formula PV = FV / (1 + r)^n, where PV is the present value (or amount of the note), FV is the future value (or amount to be paid), r is the annual interest rate, and n is the number of periods (in years). In this case, we have PV = $918,000 (amount to be paid), FV = $918,000 + $9,000 (note amount + accrued interest) = $927,000, n = 6/12 = 0.5 years (since the note was issued on 10/1/2016 and payable on 4/1/2017), and we want to find r. Plugging in the values, we get:

$918,000 = $927,000 / (1 + r)^0.5

Solving for r, we get:

r = 3.99%

Therefore, the imputed annual interest rate is approximately 4%. The closest answer choice is B.

Question 7

Peecher accepted a three-year,noninterest-bearing note in exchange for merchandise sold.Which of the following is true?

Accepted Answer

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Question 8

In deciding whether financing with receivables is a secured borrowing or a sale under IFRS,the critical element is the extent to which:

Accepted Answer

The critical element in deciding whether financing with receivables is a secured borrowing or a sale under IFRS is whether the transferee has received substantially all the risks and rewards of ownership. If the transferee has received substantially all the risks and rewards of ownership, then it is considered a sale. If not, it is considered a secured borrowing. The other options - the age of the receivables, surrender of control, and reliance on funds - are not as critical in this determination.

Question 9

What is the correct entry to record the note?

Accepted Answer

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Question 10

Accounting for the pledging of accounts receivable as collateral for a loan requires:

Accepted Answer

Accounting standards require disclosure of the arrangement in notes to the financial statements. This is because the receivables are still part of the current assets and should not be removed. However, the disclosure is necessary to inform users of the financial statements that the receivables have been pledged as collateral for a loan. Option A is incorrect because the receivables should not be reported net of the borrowed amount. Option B is incorrect because the pledged receivables should still be included in current assets. Option D is incorrect because the pledging of accounts receivable as collateral for a loan does require accounting treatment.

Question 11

Priscilla's Exotic Pets discounted a note receivable without recourse and the sales criteria were met.The discounting is recorded as:

Accepted Answer

When a note receivable is discounted without recourse and the sales criteria are met, it is considered a sale. The seller has transferred virtually all of the risks and rewards of ownership to the buyer, and therefore can recognize the sale and remove the note receivable from its books.

Question 12

If Frasquita accrued interest of $15,000 on the note in its 2016 year-end financial statements,what would the manufacturer record in its 2016 income statement for this transaction?

Accepted Answer

The answer of If Frasquita accrued interest of $15,000 on...

Question 13

Which of the following is considered a sale of receivables?

Accepted Answer

Factoring receivables without recourse is considered a sale of receivables because the company selling the receivables (the factor) assumes the credit risk associated with the receivables, effectively transferring ownership and risk from the seller to the buyer.

Question 14

The entry to record interest on December 31,2016 would be:

Accepted Answer

The answer of The entry to record interest on December...

Question 15

The annual interest rate on Note A is closest to:

Accepted Answer

The annual interest rate on Note A is 9.14%.

Question 16

The cash collection on December 31,2017,would be recorded as:

Accepted Answer

The answer of The cash collection on December 31,2017,would be...

Question 17

The cash collection on July 1,2016,would be recorded as:

Accepted Answer

The answer of The cash collection on July 1,2016,would be...

Question 18

A note receivable Mild Max Cycles discounted with recourse was dishonored on its maturity date.Mild Max would debit:

Accepted Answer

When a note receivable is dishonored, the company would debit a receivable account to recognize that the expected cash inflow from the note will not be realized and needs to be reclassified as an account receivable again.

Question 19

Drebin Security Systems sold merchandise to a customer in exchange for a $50,000,five-year,noninterest-bearing note when an equivalent loan would carry 10% interest.Drebin would record sales revenue on the date of sale equal to:

Accepted Answer

The sales revenue should be recorded as the present value of the note since it is a noninterest-bearing note. This can be calculated using the present value formula with a 10% interest rate. Therefore, the answer is D - The present value of $50,000 using a 10% interest rate.

Question 20

If Frasquita accrued interest of $15,000 on the note in its 2016 year-end financial statements,what amount would it record the equipment on its 6/30/2016 balance sheet?

Accepted Answer