Chapter 7: Question ISTQ1 (page 384)
Under IFRS, cash and cash equivalents are reported:
(a) the same as GAAP.
(b) as separate items.
(c) similar to GAAP, except for the reporting of bank overdrafts.
(d) always as the first items in the current assets section.
Thecorrect option is c.
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(Bad-Debt Reporting) Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2017.
1. An aging schedule of the accounts receivable as of December 31, 2017, is as follows.
Age | Net Debit Balance | % to be applied after correction is made |
Under 60-days | \(172,342 | 1% |
60-90 days | 136,490 | 3% |
91-120 days | 39,924 | 6% |
Over 120 days | 23,644 | \)3,700 definitely uncollectible; estimated remainder uncollectible is 25% |
\(372,400 |
*The \)3,240 write-off of receivables is related to the 91-to-120 day category.
2. The Accounts Receivable control account has a debit balance of \(372,400 on December 31, 2017.
3. Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for \)3,240 on November 3, 2017, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.
4. Allowance for Doubtful Accounts is as follows for 2017.
Allowance for Doubtful Accounts | |||||
Nov 3 | Uncollectible accounts written off | 3,240 | Jan 1 | Beginning balance | 8,750 |
Dec 31 | 5% of \(372,400 | 18,620 |
5. A credit balance exists in Accounts Receivable (60–90 days) of \)4,840, which represents an advance on a sales contract.
Instructions
Assuming that the books have not been closed for 2017, make the necessary correcting entries.
Discuss the accounting for sales allowances and how they relate to the concept of variable consideration.
Explain how accounting for bad debts can be used for earnings management.
(Journalize Various Accounts Receivable Transactions) The balance sheet of Starsky Company at December 31, 2016, includes the following.
Note receivable | \(36,000 | |
Accounts receivable | 182,100 | |
Less: Allowance for doubtful accounts | 17,300 | \)200,800 |
Transactions in 2017 include the following.
1. Accounts receivable of \(138,000 were collected including accounts of \)60,000, on which 2% sales discounts were allowed.
2. \(5,300 was received in payment of an account which was written off the books as worthless in 2016.
3. Customer accounts of \)17,500 were written off during the year.
4. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable.
Instructions
Prepare all journal entries necessary to reflect the transactions above.
(Notes Receivable with Realistic Interest Rate) On October 1, 2017, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Arden’s financial statements are prepared on a calendar-year basis.
Instructions
Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Arden Farm Equipment Company for the entire term of the note.
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