Chapter 7: Q4Q (page 362)
Springsteen Inc. reported in a recent annual report “Restricted cash for debt redemption.” What section of the balance sheet would report this item?
Theasset section of the balance sheet would report the above provided item.
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(Analysis of Receivables) Presented below is information for Jones Company.
1. Beginning-of-the-year Accounts Receivable balance was \(15,000.
2. Net sales (all on account) for the year were \)100,000. Jones does not offer cash discounts.
3. Collections on accounts receivable during the year were $70,000.
Instructions
(a) Prepare (summary) journal entries to record the items noted above.
(b) Compute Jones’s accounts receivable turnover and days to collect receivables for the year. The company does not believe it will have any bad debts.
(c) Use the turnover ratio computed in (b) to analyze Jones’s liquidity. The turnover ratio last year was 6.0
Clark Pierce conducts a wholesale merchandising business that sells approximately 5,000 items per month with a total monthly average sales value of $250,000. Its annual bad debt rate has been approximately 1½% of sales. In recent discussions with his bookkeeper, Mr. Pierce has become confused by all the alternatives apparently available in handling the Allowance for Doubtful Accounts balance. The following information has been presented to Pierce.
1. An allowance can be set up (a) on the basis of a percentage of receivables or (b) on the basis of a valuation of all past due or otherwise questionable accounts receivable. Those considered uncollectible can be charged to such allowance at the close of the accounting period, or specific items can be charged off directly against (1) Gross Sales or to (2) Bad Debt Expense in the year in which they are determined to be uncollectible.
2. Collection agency and legal fees, and so on, incurred in connection with the attempted recovery of bad debts can be charged to (a) Bad Debt Expense, (b) Allowance for Doubtful Accounts, (c) Legal Expense, or (d) Administrative Expense.
3. Debts previously written off in whole or in part but currently recovered can be credited to (a) Other Revenue, (b) Bad Debt Expense, or (c) Allowance for Doubtful Accounts.
Instructions
Which of the foregoing methods would you recommend to Mr. Pierce in regard to (1) allowances and charge-offs, (2) collection expenses, and (3) recoveries? State briefly and clearly the reasons supporting your recommendations.
What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed?
Discuss the accounting for sales allowances and how they relate to the concept of variable consideration.
(Transfer of Receivables with Recourse) Beyoncé Corporation factors \(175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2017. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.
Instructions
(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?
(b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2017, for Beyoncé to record the sale of receivables, assuming the recourse obligation has a fair value of \)2,000.
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