CPA Financial Accounting and Reporting (FAR) › Receivables
Which of the following situations is most likely to be treated as a sale of accounts receivables?
Discounting a note from a customer at a local bank
Factoring with recourse in exchange for cash
Pledging receivables in exchange for a loan
Factoring without recourse in exchange for cash
Factoring without recourse means that the original owner of the receivable has no responsibility should the customer never pay. This effectively means the the receivable has been sold.
On July 1, Year 10, Cabaret Corporation factored $80,000 of its accounts receivable without recourse to Playtime Company. Playtime retains 10% of the accounts receivable as an allowance for sales returns and charges a 5% commission on the gross amount of factored receivables. How much cash did Cabaret receive from factoring its receivables?
$68,000
$72,000
$76,000
$80,000
A total of 15% was held back by Playtime (10% for the allowance and 5% for the commission). Therefore, Cabaret received $80K x 85% (100% - 15%) = $68K.
Of the following, which is a method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement?
Allowance method based on A/R aging
Income Method
Expense Method
Gross sales
Aging receivables focuses on the balance sheet and emphasizes assets. It results in a good matching of revenue and expenses.
Walnut Company received from a customer an 1-year, $200,000 note bearing annual interest of 8%. After holding the note for 8 months, Walnut discounted the note at a local bank at an effective rate of 12%. What is the maturity value of the note?
$200,000
$226,000
$216,000
$169,500
The maturity value of the note is the principal of $200K plus the interest due of $16K ($200K x 8%).