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Exam 7: Financial Assets

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Question 31

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One of the major steps in achieving internal control over accounts receivable is that the Billing department reviews the sales order,the customer's credit file,and decides whether and how much credit should be extended.

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Question 32

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Evaluating the quality of receivables (a.)The 2015 annual report of Modern Books,a publicly traded corporation,reports accounts receivable (net of allowance for doubtful accounts),of $190,714 as of February 28,2015.What assurance do readers of Modern Books ' annual report have that these receivables really exist and are not fictitious assets recorded to make the balance sheet "look good"? (b.)The accounts receivable turnover rate is frequently used in evaluating the liquidity of accounts receivable.How is the accounts receivable turnover rate computed? What type of information does the accounts receivable turnover rate provide?

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(a)The financial statements of publicly ...

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Question 33

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If the maker of a note defaults,an entry is made which debits Accounts Receivable and credits Notes Receivable.

A line of credit creates a liability for the borrower when it is granted by the bank.

The direct write-off method of recognizing uncollectible accounts expense:

Which of the following activities affects net income,but has no immediate impact upon cash flows?

Financial assets describe not just cash,but all assets that are easily and directly convertible into known amounts of cash,except marketable securities.

Uncollectible accounts expense:

At December 31,2015,Laconia Industries' portfolio of investments in available for sale marketable securities consisted of the following: (a.)Illustrate the presentation of marketable securities and unrealized holding gain (or loss)in Laconia's financial statements at December 31,2015.Indicate the financial statement and section in which each item appears. (b.)Assume that on March 15,2016,Laconia made the following sales of securities: (1)Sold 5,000 shares of its investment in Crown,Inc.,at a price of $20 per share. (2)Sold 1,000 shares of its investment in Plastic Dots at a price of $45 per share. Compute the gain or loss recognized in Laconia's 2016 income statement for each sale: (1).Sale of 5,000 shares of Crown: $_____________ Gain/Loss (2).Sale of 1,000 shares of Plastic Dots: $_____________ Gain/Loss (c.)At December 31,2016,the market values of these stocks are: Crown,$21 per share; Plastic Dots,$42 per share.Complete the following schedule showing cost and current market value of securities owned by Laconia at the end of 2016. (d.)Illustrate the presentation of marketable securities and unrealized holding gain (or loss)in Laconia's financial statements at December 31,2016.(Follow same format as in part a.)

A basic characteristic of all marketable securities is that they can be purchased or sold quickly and easily at quoted market prices.

Bank reconciliation At March 31,the balance of the Cash account according to the records of Fisher Company was $7,261.The March 31 bank statement showed a balance of $8,798.You are to prepare the bank reconciliation of Fisher Company at March 31,using the following supplementary information and as per the given format: (a.)Deposit in transit at March 31,$6,772. (b.)Outstanding checks: no.120,$140; no.121,$932; no.127,$307; no.134,$2,200. (c.)Service charge by bank,$50. (d.)A note receivable for $5,050 left by Fisher Company with bank for collection that had been collected and credited to company's account.No interest involved. (e.)A check for $90 drawn by a customer,Stuart Sands,but deducted from Fisher's account by the bank and returned with the notation "NSF." (f.)Fisher's check no.480,issued in payment of $970 worth of office equipment,correctly written in the amount of $970 but erroneously recorded in Fisher's accounting records as $790.

The balance shown on a bank statement is always less than the month-end balance of a company's cash account in the general ledger.

The lower the accounts receivable turnover rate,the longer a company must wait to collect from its credit customers.

Cash management (a.)What is meant by the term "cash management"? (b.)Identify at least three basic objectives of effective cash management.

At December 31,before adjusting and closing the accounts had occurred,the Allowance for Doubtful Accounts of Seaboard Corporation showed a debit balance of $3,200.An aging of the accounts receivable indicated the amount probably uncollectible to be $2,100.Under these circumstances,a year-end adjusting entry for uncollectible accounts expense would include a:

In order for a company's accounting records to be up-to-date and accurate after a bank reconciliation has been completed,journal entries should be made for any service charges by the bank and for deposits in transit.

Information for the Hooper Company is as follows: (1)What is the amount of uncollectible account expense for 2015 if the company uses the Percentage of Sales method and 2% of credit sales are deemed uncollectible? (2)What is the amount of uncollectible account expense if the company uses the balance sheet approach and estimates $2,200 as uncollectible in 2015? (3)What is the net realizable value of accounts receivable if the company uses the balance sheet approach? (4)If the company uses the balance sheet approach and writes-off a receivable of $450 what will be the net realizable value of accounts receivable after the write off?

Accounts receivable are classified as current assets:

Service charges are an example of a transaction that appears in the bank statement but which may not yet have been recorded by the company.

Uncollectible accounts--two methods At the end of the year the unadjusted trial balance of Angel Provisions included the following accounts: (a.)If Angel uses the balance sheet approach to estimate uncollectible accounts expense,and aging the accounts receivable indicates the estimated uncollectible portion to be $6,075,what will the uncollectible accounts expense for the year be? (b.)If the income statement approach to estimating uncollectible accounts expense is followed,and uncollectible accounts expense is estimated to be 1% of net credit sales,what is the amount of uncollectible accounts expense for the year?