Chapter 7: Question ISTQ2 (page 384)
Under IFRS, receivables are to be reported on the balance sheet at:
(a) amortized cost.
(b) amortized cost adjusted for estimated loss provisions.
(c) historical cost.
(d) replacement cost.
Thecorrect option is b.
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(Expected Cash Flows) On December 31, 2017, Conchita Martinez Company signed a \(1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Conchita Martinez’s financial situation worsened. On December 31, 2019, Sauk City Bank determined that it was probable that the company would pay back only \)600,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,000,000 loan.
Instructions
(a) Determine the amount of cash Conchita Martinez received from the loan on December 31, 2017.
(b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2019.
(c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2019.
(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.
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.
On June 3, Arnold Company sold to Chester Company merchandise having a sale price of \(3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling \)90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company
Instructions
(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered at net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.
When is the financial components approach to recording the transfers of receivables used? When should a transfer of receivables be recorded as a sale?
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