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Chapter 7: Question E7-17 (page 368)
(Transfer of Receivables with Recourse) Ames Quartet Inc. factors receivables with a carrying amount of \(200,000 to Joffrey Company for \)160,000 on a with recourse basis.
Loss on sale of receivables equals$41,000.
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The controller for Clint Eastwood Co. is attempting to determine the amount of cash to be reported on its December 31, 2017, balance sheet. The following information is provided.
1. Commercial savings account of \(600,000 and a commercial checking account balance of \)900,000 are held at First National Bank of Yojimbo.
2. Money market fund account held at Volonte Co. (a mutual fund organization) permits Eastwood to write checks on this balance, \(5,000,000.
3. Travel advances of \)180,000 for executive travel for the first quarter of next year (employee to reimburse through salary reduction).
4. A separate cash fund in the amount of \(1,500,000 is restricted for the retirement of long-term debt.
5. Petty cash fund of \)1,000.
6. An I.O.U. from Marianne Koch, a company customer, in the amount of \(190,000.
7. A bank overdraft of \)110,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank.
8. The company has two certificates of deposit, each totaling \(500,000. These CDs have a maturity of 120 days.
9. Eastwood has received a check that is dated January 12, 2018, in the amount of \)125,000.
10. Eastwood has agreed to maintain a cash balance of \(500,000 at all times at First National Bank of Yojimbo to ensure future credit availability.
11. Eastwood has purchased \)2,100,000 of commercial paper of Sergio Leone Co. which is due in 60 days.
12. Currency and coin on hand amounted to $7,700.
Instructions
(a) Compute the amount of cash to be reported on Eastwood Co.鈥檚 balance sheet at December 31, 2017.
(b) Indicate the proper reporting for items that are not reported as cash on the December 31, 2017, balance sheet.
What are the reasons that a company gives trade discounts? Why are trade discounts not recorded in the accounts like cash discounts?
Milner Family Importers sold goods to Tung Decorators for \(30,000 on November 1, 2017, accepting Tung鈥檚 \)30,000, 6-month, 6% note. Prepare Milner鈥檚 November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest.
Your accounts receivable clerk, Mitra Adams, to whom you pay a salary of \(1,500 per month, has just purchased a new Acura. You decide to test the accuracy of the accounts receivable balance of \)82,000 as shown in the ledger.
The following information is available for your first year in business.
(1) Collection from customer $198,000.
(2) Merchandise purchased 320,000.
(3) Ending merchandise inventory by 90,000.
(4) Goods are marked to sell at 40% above cost.
Instructions
Compute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent shortages. Assume that all sales are made on the account.
Arness Woodcrafters sells \(250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable. Arness estimates the fair value of the recourse liability to be \)8,000. Prepare the journal entry for Arness to record the sale.
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