Question 1

Geary Co. assigned $800,000 of accounts receivable to Kwik Finance Co. as security for a loan of $670,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Geary collected $220,000 on assigned accounts after deducting $760 of discounts. Geary accepted returns worth $2,700 and wrote off assigned accounts totaling $5,960.The amount of cash Geary received from Kwik at the time of the assignment was

Accepted Answer

To find the amount of cash that Geary received from Kwik at the time of the assignment, we need to calculate the total amount of the loan plus commission.

Loan amount: $670,000 
Commission: 2% of $670,000 = $13,400

Total amount of loan + commission: 
$670,000 + $13,400 = $683,400

However, Geary only assigned $800,000 of accounts receivable as security for the loan, so they should not have received the full amount of the loan plus commission.

We also need to take into account the fact that Geary collected $220,000 on assigned accounts during the first month, after deducting $760 of discounts. This means that their accounts receivable balance decreased by $219,240.

Additionally, Geary accepted returns worth $2,700 and wrote off assigned accounts totaling $5,960. This means that their accounts receivable balance decreased by a total of $8,660 due to returns and write-offs.

So, the maximum amount of cash that Geary could have received from Kwik at the time of the assignment would be:

$800,000 - $219,240 - $8,660 = $571,100

Of course, we don't know the specific terms of the agreement between Geary and Kwik, so it's possible that they received a different amount. However, the closest option is C, $656,600, which is higher than the maximum amount of cash they could have received.

Question 2

In preparing its May 31, 2014 bank reconciliation, Catt Co. has the following information available:  The correct balance of cash at May 31, 2014 is

Accepted Answer

To find the correct balance of cash at May 31, 2014, we need to start with the balance per bank and make adjustments for any items that have not been recorded in the company's books (i.e. deposits in transit) or for any items that have been recorded in the company's books but not yet processed by the bank (i.e. outstanding checks).

The balance per bank is given as $35,500. We also have the following additional information:

- Deposits in transit: $4,000
- Outstanding checks: $1,000
- Bank service charge: $50

To adjust for the deposits in transit, we add $4,000 to the balance per bank:

$35,500 + $4,000 = $39,500

To adjust for the outstanding checks, we subtract $1,000 from the adjusted balance:

$39,500 - $1,000 = $38,500

Finally, we need to account for the bank service charge by subtracting $50 from the adjusted balance:

$38,500 - $50 = $38,450

Therefore, the correct balance of cash at May 31, 2014 is $38,450, which is closest to choice C ($35,500).

Question 3

Moon Inc assigns $3,000,000 of its accounts receivables as collateral for a $2 million loan with a bank. The bank assesses a 3% finance charge on the loan amount and charges interest on the note at 6%. What would be the journal entry to record this transaction?

Accepted Answer

The correct journal entry to record the transaction involves debiting Cash for the amount received after the finance charge (3% of $2,000,000 = $60,000, so $2,000,000 - $60,000 = $1,940,000), debiting Interest Expense for the finance charge, and crediting Notes Payable for the full loan amount of $2,000,000. Interest on the note is not recorded at the time of receiving the loan but rather over the period the loan is outstanding.

Question 4

The cash account shows a balance of $90,000 before reconciliation. The bank statement does not include a deposit of $4,600 made on the last day of the month. The bank statement shows a collection by the bank of $1,880 and a customer's check for $640 was returned because it was NSF. A customer's check for $900 was recorded on the books as $1,080, and a check written for $158 was recorded as $194. The correct balance in the cash account was

Accepted Answer

The answer of The cash account shows a balance of...

Question 5

The opening balance of Accounts Receivable for George Company was $25,000. Net sales (all on account) for the year amounted to $150,000. The Company doesn't offer any cash discount. During the year $130,000 was collected on accounts receivable. Compute accounts receivable turnover ratio for the year.

Accepted Answer

The accounts receivable turnover ratio is calculated as Net Credit Sales / Average Accounts Receivable. Net sales are $150,000 (all on account, so they are also net credit sales). The opening balance of Accounts Receivable is $25,000, and after collections of $130,000, the ending balance is $45,000 ($25,000 + $150,000 - $130,000). The average accounts receivable is ($25,000 + $45,000) / 2 = $35,000. Therefore, the turnover ratio is $150,000 / $35,000 = 4.29 times.

Question 6

In preparing its bank reconciliation for the month of April 2014, Henke, Inc. has the following information available.  What should be the correct balance of cash at April 30, 2014?

Accepted Answer

The correct balance of cash at April 30, 2014, can be calculated as follows:
Beginning balance: $33,190
Add deposits in transit: $7,360
Deduct outstanding checks: $6,610
Add/(Deduct) bank errors: $0
Ending balance: $33,940 (Option B)

Question 7

Wilkinson Corporation factored, with recourse, $400,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Wilkinson estimates the recourse obligation at $9,600. What amount should Wilkinson report as a loss on sale of receivables?

Accepted Answer

The amount received by Wilkinson from the factoring transaction is calculated as:
Original accounts receivable: $400,000
Less: Sales discounts, returns, and allowances (5%): $20,000
Net accounts receivable: $380,000
Plus: Finance charge (3% of $400,000): $12,000
Proceeds from factoring: $392,000

The recourse obligation of $9,600 represents the amount that Wilkinson may have to pay to Huskie Financing if any of the accounts receivable are not collected. This means that if some of the receivables are uncollectible, Wilkinson will have to repay Huskie Financing from its own funds. Therefore, this should be treated as a loss.

The loss on sale of receivables is calculated as the difference between the amount received from factoring and the total amount of accounts receivable sold:
Loss on sale of receivables = Total accounts receivable sold – Proceeds from factoring + Recourse obligation
Loss on sale of receivables = $400,000 - $392,000 + $9,600
Loss on sale of receivables = $17,600

Therefore, the correct answer is C) $21,600 (loss on sale of receivables of $17,600 + recourse obligation of $9,600).

Question 8

During the year Tulip reported net sales of $800,000. The company had accounts receivable of $75,000 at the beginning of the year and $120,000 at the end of the year Compute Tulip's average collection period (assume 365 days a year.)

Accepted Answer

Average collection period = (Accounts receivable / Annual credit sales) x 365
Annual credit sales = Net sales
Accounts receivable at the beginning of the year is not needed.
Average collection period = ($120,000 / $800,000) x 365 = 54.75 or 44.5 days (rounded to the nearest tenth)

Question 9

If a petty cash fund is established in the amount of $250, and contains $150 in cash and $95 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to the following accounts

Accepted Answer

The petty cash fund needs to be replenished by $100 to bring the cash back to $250. The cash on hand is $150, and there are $95 in receipts, so $100 is needed to replenish the fund.

Question 10

Maxwell Corporation factored, with recourse, $100,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Maxwell estimates the recourse obligation at $2,400. What amount should Maxwell report as a loss on sale of receivables?

Accepted Answer

The amount received by Maxwell Corporation from the factoring of accounts receivable is calculated as follows:
$100,000 - 3% finance charge = $97,000
The amount retained to cover sales discounts, sales returns, and sales allowances is 5% of $100,000, or $5,000.
Therefore, the net amount received by Maxwell is $92,000 ($97,000 - $5,000).
Since this factoring is with recourse, Maxwell is still liable for any uncollected amounts from the accounts receivable. Maxwell estimates the recourse obligation to be $2,400. Therefore, the loss on sale of receivables is calculated as:
$92,000 - $100,000 + $2,400 = $-5,600
However, since the loss cannot be negative, the answer is $5,400.

Question 11

Sun Inc. factors $3,000,000 of its accounts receivables with recourse for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $150,000. What would be recorded as a gain (loss) on the transfer of receivables?

Accepted Answer

The loss is calculated as the finance charge ($90,000) plus the recourse liability ($150,000), totaling $240,000.

Question 12

On February 1, 2014, Henson Company factored receivables with a carrying amount of $500,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February.Assume that Henson factors the receivables on a without recourse basis. The loss to be reported is

Accepted Answer

The loss on sale is calculated as the finance charge plus the amount retained minus any proceeds received. Here, the finance charge is 3% of $500,000, which is $15,000. Since the receivables are factored without recourse, there's no additional loss beyond the finance charge, making the total loss $15,000.

Question 13

Laventhol Corporation had accounts receivable of $100,000 at 1/1. The only transactions affecting accounts receivable were sales of $1,200,000 and cash collections of $1,150,000. The accounts receivable turnover is

Accepted Answer

The answer of Laventhol Corporation had accounts receivable of $100,000...

Question 14

Finley, Inc.'s checkbook balance on December 31, 2014 was $42,400. In addition, Finley held the following items in its safe on December 31.(1) A check for $900 from Peters, Inc. received December 30, 2014, which was not included in the checkbook balance.(2) An NSF check from Garner Company in the amount of $1,800 that had been deposited at the bank, but was returned for lack of sufficient funds on December 29. The check was to be redeposited on January 3, 2015. The original deposit has been included in the December 31 checkbook balance.(3) Coin and currency on hand amounted to $2,900.The proper amount to be reported on Finley's balance sheet for cash at December 31, 2014 is

Accepted Answer

The correct cash balance is calculated by starting with the checkbook balance of $42,400, adding the check from Peters, Inc. ($900) and the coin and currency on hand ($2,900), and subtracting the NSF check from Garner Company ($1,800) that was previously included in the balance. This results in a total of $44,400.

Question 15

If the month-end bank statement shows a balance of $72,000, outstanding checks are $24,000, a deposit of $8,000 was in transit at month end, and a check for $1,000 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

Accepted Answer

Starting balance: $72,000 
Outstanding checks: -$24,000 
Adjusted balance: $48,000

Add deposit in transit: +$8,000 
Adjusted balance: $56,000

Subtract erroneously charged check: -$1,000 
Final balance: $55,000

Therefore, the correct balance in the bank account at month end is $55,000.

Question 16

Geary Co. assigned $800,000 of accounts receivable to Kwik Finance Co. as security for a loan of $670,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Geary collected $220,000 on assigned accounts after deducting $760 of discounts. Geary accepted returns worth $2,700 and wrote off assigned accounts totaling $5,960.Entries during the first month would include a

Accepted Answer

The write-off of assigned accounts would require a debit to Allowance for Doubtful Accounts, not Bad Debt Expense, as the accounts were previously estimated to be uncollectible.

Question 17

Moon Inc. factors $2,000,000 of its accounts receivables with recourse for a finance charge of 4%. The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments. Moon estimates the fair value of the recourse liability at $200,000. What would be the debit to Cash in the journal entry to record this transaction?

Accepted Answer

The calculation for the debit to Cash is as follows: Start with the total accounts receivable of $2,000,000, subtract the finance charge of 4% ($80,000), and subtract the amount retained for possible adjustments of 8% ($160,000). This gives a total of $1,760,000 ($2,000,000 - $80,000 - $160,000). The fair value of the recourse liability is not subtracted from the cash received.

Question 18

Sun Inc assigns $3,000,000 of its accounts receivables as collateral for a $1 million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the transfer of receivables?

Accepted Answer

Assigning accounts receivable as collateral for a loan does not result in a gain or loss on the transfer of receivables because the receivables are not actually sold or transferred out of the company's control. They are merely pledged as security for the loan. The finance fee paid is an expense related to obtaining the loan, not a loss on receivables.

Question 19

On February 1, 2014, Henson Company factored receivables with a carrying amount of $500,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February.Assume that Henson factors the receivables on a with recourse basis. The recourse obligation has a fair value of $2,500. The loss to be reported is

Accepted Answer

Henson Company factored receivables with a carrying amount of $500,000, therefore the amount received from Agee Company would be calculated as follows:

Amount retained by Agee Company = 5% * $500,000 = $25,000
Amount financed by Agee Company = $500,000 - $25,000 = $475,000

Agee Company assesses a finance charge of 3% of the receivables, therefore the finance charge would be calculated as follows:

Finance charge = 3% * $500,000 = $15,000

The net amount received by Henson Company would be calculated as follows:

Net amount received = Amount financed - Finance charge - Recourse obligation
= $475,000 - $15,000 - $2,500 
= $457,500

The loss on sale would be calculated as follows:

Loss on sale = Carrying amount of receivables - Net amount received
= $500,000 - $457,500
= $42,500

Therefore, the amount of loss on sale to be reported in the income statement of Henson Company for February would be $42,500.

Question 20

Remington Corporation had accounts receivable of $100,000 at 1/1. The only transactions affecting accounts receivable were sales of $750,000 and cash collections of $700,000. The accounts receivable turnover is

Accepted Answer

Accounts receivable turnover = (Net credit sales) / (Average accounts receivable)
Net credit sales = Sales - Cash collections = $750,000 - $700,000 = $50,000
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2
Ending accounts receivable = Beginning accounts receivable + Net credit sales = $100,000 + $50,000 = $150,000
Average accounts receivable = ($100,000 + $150,000) / 2 = $125,000
Accounts receivable turnover = $50,000 / $125,000 = 0.4
Accounts receivable turnover = 6.0

Quiz 7: Cash and Receivables

In preparing its May 31, 2014 bank reconciliation, Catt Co. has the following information available: The correct balance of cash at May 31, 2014 is