Chapter 6 In Class Practice
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Factoring In-Class Review Problems
Factoring Example 1
Desert Company factored $150,000 of accounts receivable with Bisbee Bank on a without-
recourse basis. Bisbee assesses a 2% finance charge (payable immediately) of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Desert Company to record the factoring of the accounts receivable to the bank.
Factoring Example 2
Desert Company factored $150,000 of accounts receivable with Bisbee Bank on a with-recourse basis. Bisbee assesses a 2% finance charge (payable immediately) of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Desert Company to record the factoring of the accounts receivable to the bank assuming the recourse liability has a fair value of $7,500.
1
ACC340 – © Erin Jordan, PhD, Arizona State University
Receivables Comprehensive Review
Desert Company required additional cash for its business. Management decided to use the accounts receivable to raise the additional cash. They underwent three transactions but are unsure
which was the best decision. Given the following, determine the income statement effects of the transactions. Hint: use journal entries to analyze which accounts affect the income statement
(a) On July 1
st
, Desert assigned $400,000 of accounts receivable to Four Peaks Finance. Desert received an advance from FPF of 80% of the assigned accounts receivable less a commission of $9,600. Prior to December 31
st
, Desert collected $220,000 on the assigned accounts receivable, and remitted $232,720 to FPF, $12,720 of which represented interest on the advance from FPF.
(b) On December 1
st
, Desert sold $300,000 of net accounts receivable to Cactus Company for $270,000 The receivables were sold outright on a without recourse basis.
(c) On December 31
st
, an advance of $120,000 was received from Buckeye Bank by pledging $160,000 of Desert’s accounts receivable. Desert’s first payment to the bank is due on January 30
th
of next year.
2
ACC340 – © Erin Jordan, PhD, Arizona State University
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Related Questions
Activity 2
Directions: Compute the uncollectible account expense using the percent of accounts
receivable method.
The following information needed in the computation of uncollectible accounts expense
for March 2021 is available for Parkland Enterprises:
Sales
Cash Sales
Accounts Receivable-ending
200,000.00
50,000.00
5,000.00
Assume that the company decided that five percent (5%) of accounts receivable are
deemed uncollectible.
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View Policies
Current Attempt in Progress
Assume the following information for Teal Mountain Corp.
Accounts receivable (beginning balance)
Allowance for doubtful accounts (beginning balance)
Net credit sales
Collections
Write-offs of accounts receivable
Collections of accounts previously written off
(a)
Account Titles and Explanation
Uncollectible accounts are expected to be 6% of the ending balance in accounts receivable.
(To record sales on account)
(To record collection of accounts receivable)
Prepare the entries to record sales and collections during the period. (List all debit entries before credit entries. Credit account titles
are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account
titles and enter O for the amounts)
eTextbook and Media
$143.000
List of Accounts
11,340
Save for Later
Using multiple attempts will impact your score.
10% scare reduction after attempt 5
930,000
912.000
6,400
2,200…
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Entries for discounted note payable
A business issued a 60-day note for $48,000 to a bank. The note was discounted at 7%. Assume a 360 days in a year.
Question Content Area
a. Journalize the entry to record the issuance of the note. If an amount box does not require an entry, leave it blank. If necessary, round your answers to one decimal place.
blank
Account
Debit
Credit
- Select -
- Select -
- Select -
- Select -
- Select -
- Select -
Question Content Area
b. Journalize the entry to record the payment of the note at maturity. If an amount box does not require an entry, leave it blank.
blank
Account
Debit
Credit
- Select -
- Select -
- Select -
- Select -
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Notes Receivable Entries
1. Record the transactions in a general journal.
When required, enter amounts to the nearest cent. If an amount box does not require an entry, leave it blank. Assume 360 days in a year.
J. K. Pratt Co. had the following transactions:
20-1
July 20
Received a $750, 30-day, 5% note from J. Akita in payment for sale of merchandise.
Aug. 19
J. Akita paid note issued July 20 plus interest.
25
Sold merchandise on account to L. Beene, $1,100.
Sept. 5
L. Beene paid $100 and gave a $1,000, 30-day, 6% note to extend time for payment.
Oct. 5
L. Beene paid note issued September 5, plus interest.
10
Sold merchandise to R. Harris for $750: $50 plus a $700, 30-day, 6% note.
Nov. 9
R. Harris paid $200 plus interest on note issued October 10 and extended the note ($500) for 30 days.
Dec. 9
R. Harris paid note extended on November 9, plus interest.
10
Sold merchandise on account to B. Kraus, $1,500.
15
B. Kraus paid $150 on merchandise purchased on…
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Lincraft Corp. reports a current ratio of 3-to-1 in its 20X2 financial statements. The statement of financial position shows current assets
of $3,140,500 and current liabilities of $1,064,100. Lincraft has accounts receivable of $1,299,300. The company transfers $1,002,000
of these accounts receivable to a financial institution. There are $35,200 of bad debts associated with these accounts receivable, an
amount that is already in the allowance for doubtful accounts. Proceeds of $898,250 are received from the transfer. The transfer is on
a non-notification basis, which means that the customers pay Lincraft and Lincraft then remit the cash to the financial institution. The
customers pay $946,000 to Lincraft on schedule, $35,200 is written off to the allowance at the appropriate time, and the cash
remittance is forwarded to the financial institution.
Required:
1. Record all journal entries for the sequence of events assuming:
a. The transfer is recorded as a sale/derecognition. (If no…
arrow_forward
Assume the following information for Teal Mountain Corp.
Accounts receivable (beginning balance)
$159,000
Allowance for doubtful accounts (beginning balance)
11,470
Net credit sales
944,000
Collections
906,000
Write-offs of accounts receivable
5,400
Collections of accounts previously written off
2,000
Uncollectible accounts are expected to be 8% of the ending balance in accounts receivable.
Part 1
Prepare the entries to record sales and collections during the period. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
enter an account title to record sales on account
enter a debit amount
enter a credit amount
enter an account title to record sales on account
enter a debit amount
enter a credit amount
(To record sales on account)
enter an account title to record collection of accounts receivable
enter a debit…
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Accounting
Reema Furniture factors $200,000 of receivables to Kroton Factors. Kroton
charges a service commission of 2% of the accounts receivable sold. Record the
journal entry for Reema Furniture for the sale of the receivables. Debit: Debit:
Credit:
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Classifying Items Related to Receivables and Payables in a Balance Sheet
When examining the accounts of WholeFoods Company, we ascertain that balances relating to both receivables and payables are included in a single controlling account (called receivables), which has an $7,200 debit balance. An analysis of the details of this account reveals the following.
Items
Debit
Credit
Accounts receivable—customers
$16,000
Accounts receivable—officers (current collection expected)
1,000
Travel advances to sales staff
400
Accounts payable for merchandise
$7,700
Unpaid salaries
1,320
Credit balances in customer accounts (accounts receivable)
800
Cash received in advance from customers for goods not yet shipped
180
Allowance for doubtful accounts, adjusted
200
Indicate how each of the items should be reported on WholeFoods Company’s balance sheet.
Some accounts below may have a zero balance.
Do not use negative signs in your answers.
Cash and…
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eBook
Show Me How
Print Item
Accounts Receivable Analysis
A company reports the following:
Sales
$531,440
Average accounts receivable (net)
20,440
Determine (a) the accounts receivable turnover and (b) the number of days' sales in receivables. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume a 365-day year.
a. Accounts receivable turnover
fill in the blank 1
b. Number of days' sales in receivables
fill in the blank 2 days
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TB Problem 7-170 (Algo) Cordova, Incorporated, reported the following...
Cordova, Incorporated, reported the following receivables in its December 31, 2023, year-end balance sheet:
Current assets:
Accounts receivable, net of $50,000 in allowance for uncollectible accounts
Interest receivable
Notes receivable
Additional information:
1. The notes receivable account consists of two notes, a $100,000 note and a $280,000 note. The $100,000 note is dated October 31,
2023, with principal and interest payable on October 31, 2024. The $280,000 note is dated March 31, 2023, with principal and 8%
interest payable on March 31, 2024.
2. During 2024, sales revenue totaled $2,100,000, $1,960,000 cash was collected from customers, and $39,000 in accounts
receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the
allowance account to an amount equal to 8% of year-end gross accounts receivable.
Required:
1. In addition to sales revenue,…
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- Activity 2 Directions: Compute the uncollectible account expense using the percent of accounts receivable method. The following information needed in the computation of uncollectible accounts expense for March 2021 is available for Parkland Enterprises: Sales Cash Sales Accounts Receivable-ending 200,000.00 50,000.00 5,000.00 Assume that the company decided that five percent (5%) of accounts receivable are deemed uncollectible.arrow_forwardView Policies Current Attempt in Progress Assume the following information for Teal Mountain Corp. Accounts receivable (beginning balance) Allowance for doubtful accounts (beginning balance) Net credit sales Collections Write-offs of accounts receivable Collections of accounts previously written off (a) Account Titles and Explanation Uncollectible accounts are expected to be 6% of the ending balance in accounts receivable. (To record sales on account) (To record collection of accounts receivable) Prepare the entries to record sales and collections during the period. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts) eTextbook and Media $143.000 List of Accounts 11,340 Save for Later Using multiple attempts will impact your score. 10% scare reduction after attempt 5 930,000 912.000 6,400 2,200…arrow_forwardEntries for discounted note payable A business issued a 60-day note for $48,000 to a bank. The note was discounted at 7%. Assume a 360 days in a year. Question Content Area a. Journalize the entry to record the issuance of the note. If an amount box does not require an entry, leave it blank. If necessary, round your answers to one decimal place. blank Account Debit Credit - Select - - Select - - Select - - Select - - Select - - Select - Question Content Area b. Journalize the entry to record the payment of the note at maturity. If an amount box does not require an entry, leave it blank. blank Account Debit Credit - Select - - Select - - Select - - Select -arrow_forward
- Notes Receivable Entries 1. Record the transactions in a general journal. When required, enter amounts to the nearest cent. If an amount box does not require an entry, leave it blank. Assume 360 days in a year. J. K. Pratt Co. had the following transactions: 20-1 July 20 Received a $750, 30-day, 5% note from J. Akita in payment for sale of merchandise. Aug. 19 J. Akita paid note issued July 20 plus interest. 25 Sold merchandise on account to L. Beene, $1,100. Sept. 5 L. Beene paid $100 and gave a $1,000, 30-day, 6% note to extend time for payment. Oct. 5 L. Beene paid note issued September 5, plus interest. 10 Sold merchandise to R. Harris for $750: $50 plus a $700, 30-day, 6% note. Nov. 9 R. Harris paid $200 plus interest on note issued October 10 and extended the note ($500) for 30 days. Dec. 9 R. Harris paid note extended on November 9, plus interest. 10 Sold merchandise on account to B. Kraus, $1,500. 15 B. Kraus paid $150 on merchandise purchased on…arrow_forwardLincraft Corp. reports a current ratio of 3-to-1 in its 20X2 financial statements. The statement of financial position shows current assets of $3,140,500 and current liabilities of $1,064,100. Lincraft has accounts receivable of $1,299,300. The company transfers $1,002,000 of these accounts receivable to a financial institution. There are $35,200 of bad debts associated with these accounts receivable, an amount that is already in the allowance for doubtful accounts. Proceeds of $898,250 are received from the transfer. The transfer is on a non-notification basis, which means that the customers pay Lincraft and Lincraft then remit the cash to the financial institution. The customers pay $946,000 to Lincraft on schedule, $35,200 is written off to the allowance at the appropriate time, and the cash remittance is forwarded to the financial institution. Required: 1. Record all journal entries for the sequence of events assuming: a. The transfer is recorded as a sale/derecognition. (If no…arrow_forwardAssume the following information for Teal Mountain Corp. Accounts receivable (beginning balance) $159,000 Allowance for doubtful accounts (beginning balance) 11,470 Net credit sales 944,000 Collections 906,000 Write-offs of accounts receivable 5,400 Collections of accounts previously written off 2,000 Uncollectible accounts are expected to be 8% of the ending balance in accounts receivable. Part 1 Prepare the entries to record sales and collections during the period. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit enter an account title to record sales on account enter a debit amount enter a credit amount enter an account title to record sales on account enter a debit amount enter a credit amount (To record sales on account) enter an account title to record collection of accounts receivable enter a debit…arrow_forward
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