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Exam 7: Cash and Receivables

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Question 1

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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 you the task of preparing the year-end adjusting entry for bad debts. 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.

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Ethical Dilemma:
You as the assistant co...

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Question 2

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In Dinty's adjusting entry for bad debts at year-end, which of these would be included?

A) Debit to bad debt expense for $114,000
B) Credit to allowance for uncollectible accounts for $82,000
C) Debit to accounts receivable for $32,000
D) All of these are correct.

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

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Question 3

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On December 1, 2009, General Mole borrowed $400,000 at 12% interest and pledged $500,000 in accounts receivable as collateral. Additionally, General Mole was charged a finance fee equal to 1% of the accounts receivable assigned. At the end of December, $300,000 of the assigned receivables were collected and remitted to the lender along with accrued interest. Required: Prepare journal entries to record the borrowing, the assignment of receivables, the collection on the receivables, and the recognition of interest expense.

The allowance for uncollectible accounts is a:

If a company uses the balance sheet approach to estimate bad debt expense, bad debt expense for a period can be determined by:

The Fitzgerald Company maintains a checking account at the Bank of the North. The bank provides a bank statement along with canceled checks on the last day of each month. The October 31, 2007 bank statement included the following information: The company's general ledger cash (checking) account had a balance of $42,544 at the end of October. Deposits outstanding totaled $4,224 and all checks written by the company were processed by the bank except for those totaling $5,620. In addition, a check for $500 for the purchase of office furniture was incorrectly recorded by the company as a $50 disbursement. The bank correctly processed the check during October. Required: 1. Prepare a bank reconciliation for the month of October. 2. Prepare the necessary journal entries at the end of October to adjust the general ledger cash account.

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

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

On April 1 of the current year, Troubled Company factored receivables with a carrying value of $85,000 for $60,000 in cash from Scrooge Lenders. The transfer was made without recourse. On April 1, Troubled would

On May 12, 2009, Falwell Computing sold five computers to Computing Plus for $10,000, subject to terms 3/10, n30. Falwell uses the net 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 May 20, 2009. 3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on June 5, 2009.

The following information pertains to Jacobsen Co.'s accounts receivable at December 31, 2009: During 2009, Jacobsen wrote off $18,000 in receivables and recovered $6,000 that had been written off in prior years. Jacobsen's December 31, 2008, allowance for uncollectible accounts was $40,000. Under the aging method, what amount of allowance for uncollectible accounts should Jacobsen report at December 31, 2009?

Logistics Company had the following items listed in its trial balance at 12/31/09: Included in the checking account balance is $50,000 of restricted cash that Bank of the East requires as a compensating balance for the $300,000 note. What amount will Logistics include in its year-end balance sheet as cash and cash equivalents?

Last year, Simpson Company had a receivables turnover ratio of 12. Homer, Simpson's president, was delighted when the ratio went to 18 for this year. This year, Simpson's long-standing credit terms of net 30 were changed to net 10. Should Homer be happy? Explain.

The purpose of assigning accounts receivable is to:

Discounts on notes receivable are recognized as interest earned over the term of the related note.

Compensating balances represent:

Calistoga's accounts receivable at December 31, 2009, are:

The income statement approach to estimating bad debts requires an adjusting entry at the end of the period to reduce receivables to net realizable value.

On June 30, 2009, Obama Fixtures was considering alternatives to bolster its cash position. Option One called for transferring $400,000 in accounts receivable to Dogwood's Finance Company without recourse for a 5% fee. Option Two calls for Obama to transfer the $400,000 in receivables to Dogwood's with recourse. Dogwood's charges a 4% fee for receivables factored with recourse. Option Two does not meet the conditions to be considered a sale, but Obama estimates a $3,000 recourse liability. Under either option, Dogwood's will remit 90% of the factored receivables to Obama and retains 10%. When Dogwood's collects the receivables, it remits the amount, less the fee. Required: 1. Prepare any necessary journal entry or entries if receivables are factored under Option One. 2. Prepare any necessary journal entry or entries if receivables are factored under Option Two.

The balance in accounts receivable at the beginning of 2009 was $300. During 2009, $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 2009 was: