FAR 10 - Receivables

Question 1

What is What is Bad Debt Expense?

Answer 1

Entry located on income statement. Shows amount of collectible account in a given period.

Question 2

What is the matching account for Bad Debt Expense?

Answer 2

Allowance for Doubtful Accounts. Contra account to Bad Debt Expense.

Question 3

Journal Entry for Bad Debt Expense

Answer 3

Dr Bad Debt Expense

CR Allowance for Doubtful Accounts

Question 4

What does the NRV of A/R mean?

Answer 4

The amount you expect to collect within the accounting cycle.

Question 5

Equation for NRV of Accounts Receivable

Answer 5

A/R - Bad debts = NRV

Question 6

Journal entry to write off in Direct Write off method

Answer 6

DR Expense

CR A/R

Question 7

Percentage of credit sales is attached to which financial statement?

Answer 7

Income Statement

Question 8

% credit sales is used above or below the line in the allowance account?

Answer 8

Above the line

Question 9

Which is better matching, income approach or balance sheet approach?

Answer 9

Income approach

Question 10

Which has better asset valuation, credit sales or % of receivables?

Answer 10

% of Receivables

Question 11

Aging of Receivables is which method?

Answer 11

Balance sheet, % of Receivables

Question 12

Total amount of aging of accounts

represents what?

Answer 12

Total of doubtful accounts below the line that you are aiming for.

Question 13

Journal entry to write off receivables

Answer 13

DR Allowance for Doubtful Accounts

CR A/R

Question 14

Journal entry to Recover A/R

Answer 14

DR A/R
CR Allowance

DR Cash
CR A/R

Question 15

What accounts will be listed on the Debit side of A/R?

Answer 15

Beginning balance of A/R
Sales
Recoveries
Ending Balance of A/R

Question 16

What accounts will be listed on credit side of A/R?

Answer 16

Collections

Write offs

Question 17

What accounts will be listed on debit side of Allowance for Doubtful Accounts?

Answer 17

Write offs

Question 18

What accounts will be listed on credit side of the Allowance for Doubtful Accounts?

Answer 18

Beginning balance-Doubtful Accounts
Bad Debt Expense
Recoveries
Ending Balance - Doubtful Accounts

Question 19

What is “pledging” receivables?

Answer 19

Where receivables are used as collateral in order to obtain a loan. This must be adequately disclosed in the FOOTNOTES.

Question 20

What is “assigning” receivables?

Answer 20

Where I borrow money to produce a product to deliver to a company, and pledge the future receivables as collateral. Banks mandate receivables paid directly to them.

Question 21

What is factoring

Answer 21

A way of obtaining money by a company involving a third party called a “factor”.

Question 22

Explains how factoring works.

Answer 22

Company A needs money, and sells receivables to Company B, the factor either with or without recourse.

Question 23

What is factoring without recourse?

Answer 23

Where a factor purchases receivables from a company, and receives either the gain or loss from the collections.

Question 24

What is factoring with recourse?

Answer 24

If the factor is unable to collect the receivable from the debtor, then the company must pay him the amount.

Question 25

How are returns handles within factoring?

Answer 25

A factor will usually hold back a certain amount of the factor fee to cover returns until the time limit for returns expires.

Question 26

What three things are required to indicate sale of a receivable as opposed to a borrowing?

Answer 26

1. Asset is out of reach. 2. Other party has full rights and control of the asset. 3. The transferor does not maintain control over it.

Question 27

Journal entry for factoring if control is surrendered

Answer 27

DR Cash DR Due from factor(withheld amount) DR Loss of sale on receivables CR Accounts Receivable

Question 28

Journal entry for factoring if control is not surrendered

Answer 28

DR Cash DR Interest Expense CR Note payable

Question 29

Another name for factoring without surrendering

Answer 29

Secured borrowing

Question 30

Another name for factoring with surrendering

Answer 30

A sale

Question 31

Journal entry for factoring without recourse

Answer 31

DR Cash & Amount due frm Factor(Holdback) DR Loss on Factoring(Fee to Factor) DR Allowance for Bad debts CR Accounts receivable

Question 32

Journal entry for factoring with recourse

Answer 32

DR Cash and Amount due from Factor(Holdback) DR Loss on factoring DR Allowance for bad debts CR Liability on Transferred receivables CR Estimated recourse liability

Question 33

Formula for discounting:

Answer 33

Face Amount + Interest (Interest = Face x Int. rate x Term) = Maturity - Discount (Discount = Maturity value x Discount rate x Time remaining =Proceeds

Question 34

When discounting a not after holding it for 6 months you figure 1.)interest and 2.)discount based upon what?

Answer 34

1. Interest based upon entire amount of bond | 2. Discount based on remainder of maturity of bond

Question 35

When a person has a participating interest in a financial instrument, that participating interest is figured as a percentage of carrying value or fair value?

Answer 35

Fair value

Question 36

What are servicing assets and servicing liabilities?

Answer 36

Charges for servicing and maintaining financial instruments. If less than fair value, it is a servicing liability. If more, it is a servicing asset.

Question 37

What is an IO strip?

Answer 37

A financial instrument it is a method of charging for servicing fees through percentage of interest payments received. N in "DENT"