Question 1

Maxwell Corporation factored, with guarantee (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.What amount of cash would Maxwell receive on the sale of receivables?

Accepted Answer

The answer of Maxwell Corporation factored, with guarantee (recourse), $100,000...

Question 2

Laventhol Corporation had accounts receivable of $100,000 at 1\1.The only transactions affecting accounts receivable were sales of $900,000 and cash collections of $850,000.The accounts receivable turnover is

Accepted Answer

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

Question 3

Assume Royal Palm Corp., an equipment distributor, sells a piece of machinery with a list price of $800,000 to Arch Inc.Arch Inc.will pay $850,000 in one year.Royal Palm Corp.normally sells this type of equipment for 90% of list price.How much should be recorded as revenue?

Accepted Answer

Revenue should be recorded at the fair value of the consideration received or receivable. Since Royal Palm Corp. normally sells the equipment for 90% of the list price, the revenue should be recorded as 90% of $800,000, which is $720,000.

Question 4

Moon Inc assigns $1,500,000 of its accounts receivables as collateral for a $1 million loan with a bank.The bank assesses a 3% finance fee and charges interest on the note at 6%.What would be the journal entry to record this transaction?

Accepted Answer

The bank charges a 3% finance fee on the $1,000,000 loan, which is $30,000. Therefore, the cash received is $1,000,000 - $30,000 = $970,000. The journal entry reflects the cash received, the finance charge, and the notes payable.

Question 5

Use the following information for questions.
Geary Co.assigned $400,000 of accounts receivable to Kwik Finance Co.as security for a loan of $335,000.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 $110,000 on assigned accounts after deducting $380 of discounts.Geary accepted returns worth $1,350 and wrote off assigned accounts totaling $2,980.
-The amount of cash Geary received from Kwik at the time of the transfer was

Accepted Answer

The amount of cash Geary received from Kwik was calculated as follows:
Loan amount = $335,000
Commission charged by Kwik = $335,000 x 2% = $6,700
Amount of loan received by Geary = $335,000 - $6,700 = $328,300.

Question 6

On December 31, 2010, Flint Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000.The terms of the sale were as follows:  The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.What should be the amount of the notes receivable net of the unamortized discount on December 31, 2010 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)

Accepted Answer

To calculate the notes receivable net of the unamortized discount, we need to find the present value of the note.

The note receivable is $75,000, so we can set up the following equation:

$75,000 = P * (1 - (1 + 0.09)^{-2})/0.09

Where P is the principal amount of the note.

Solving for P, we get:

P = $52,772.51

Since no mention of interest was made in the agreement, we can assume that the note is a non-interest bearing note. Therefore, there is no unamortized discount to consider.

Thus, the notes receivable net of any unamortized discount on December 31, 2010 is $52,773 (rounded to the nearest dollar).

Therefore, the correct answer is A) $52,773.

Question 7

Equestrain Roads sold $50,000 of goods and accepted the customer's $50,000 10%
1-year note in exchange.Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30?

Accepted Answer

Since the sale was made on June 30th, the note will only accrue interest for six months until December 31st. To calculate the interest expense, we need to multiply the principal amount of $50,000 by the market rate of 10%, and then by the fraction of the year the note was outstanding.

Interest expense = $50,000 x 10% x 6/12 = $2,500

Therefore, the answer is C, $2,500.

Question 8

Use the following information for questions.
Geary Co.assigned $400,000 of accounts receivable to Kwik Finance Co.as security for a loan of $335,000.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 $110,000 on assigned accounts after deducting $380 of discounts.Geary accepted returns worth $1,350 and wrote off assigned accounts totaling $2,980.
-Entries during the first month would include a

Accepted Answer

The answer of Use the following information for questions.
Geary Co.assigned...

Question 9

Remington Corporation had accounts receivable of $100,000 at 1\1.The only transactions affecting accounts receivable were sales of $600,000 and cash collections of $550,000.The accounts receivable turnover is

Accepted Answer

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

Question 10

Sun Inc.factors $2,000,000 of its accounts receivables without guarantee (recourse) for a finance charge of 5%.The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments.What would be recorded as a gain (loss) on the transfer of receivables?

Accepted Answer

The finance charge is 5% of $2,000,000, which is $100,000. Since the receivables are factored without recourse, this finance charge is recorded as a loss on the transfer.

Question 11

Use the following information for questions.
On February 1, 2010, Henson Company factored receivables with a carrying amount of $300,000 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 guarantee (recourse) basis.The loss to be reported is

Accepted Answer

When factoring receivables on a without guarantee (recourse) basis, the seller (Henson Company) remains liable for any bad debts. Therefore, a loss on sale must be recognized if the finance charge and retained amount exceeds the carrying amount of the receivables. In this case, the finance charge is $9,000 (3% of $300,000) and the retained amount is $15,000 (5% of $300,000). The total of these two amounts is $24,000, which is greater than the carrying amount of the receivables. Therefore, a loss on sale of $9,000 must be recognized by Henson Company.

Question 12

Equestrain Roads sold $50,000 of goods and accepted the customer's $50,000 10%
1-year note receivable in exchange.Assuming 10% approximates the market rate of return, what would be the debit in this journal entry to record the sale?

Accepted Answer

The debit would be to Notes Receivable for $50,000 since that is the amount that the customer owed to Equestrian Roads in exchange for the goods. The fact that the note has a 10% interest rate does not affect the initial recording of the sale.

Question 13

Sun Inc.factors $2,000,000 of its accounts receivables with guarantee (recourse) for a finance charge of 3%.The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments.What would be recorded as a gain (loss) on the transfer of receivables?

Accepted Answer

The answer of Sun Inc.factors $2,000,000 of its accounts receivables...

Question 14

Assuming the market interest rate is 10% per annum, how much would Green Co.record as a note payable if the terms of the loan with a bank are that it would have to make one $60,000 payment in two years?

Accepted Answer

The present value of the note payable is calculated by discounting the future payment of $60,000 at the market interest rate of 10% over two years. The formula is: Present Value = Future Value / (1 + r)^n, where r is the interest rate and n is the number of periods. Thus, $60,000 / (1 + 0.10)^2 = $49,587.

Question 15

Lester Company received a seven-year zero-interest-bearing note on February 22, 2010, in exchange for property it sold to Porter Company.There was no established exchange price for this property and the note has no ready market.The prevailing rate of interest for a note of this type was 7% on February 22, 2010, 7.5% on December 31, 2010, 7.7% on February 22, 2011, and 8% on December 31, 2011.What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2010 and 2011, respectively?

Accepted Answer

The interest rate used should be the rate at the time of the transaction, which was 7% on February 22, 2010, for both years.

Question 16

Use the following information for questions.
On February 1, 2010, Henson Company factored receivables with a carrying amount of $300,000 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 guarantee (recourse) basis.The amount of cash received is

Accepted Answer

The finance charge is 3% of the $300,000 receivables, which is $9,000. 
Agee Company retains 5% of the receivables, which is $15,000 ($300,000 x 5%). 
Thus, the cash received by Henson Company is $276,000 ($300,000 - $9,000 - $15,000). 
Since the transaction is with recourse, Henson Company is responsible for any unpaid receivables that Agee Company is unable to collect. 
Therefore, a loss on sale is recognized for the estimated amount of uncollectible receivables. Without information on the estimated amount of uncollectible receivables, we cannot determine the amount of loss on sale to be reported in the income statement of Henson Company for February.

Question 17

Sun Inc assigns $2,000,000 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

The transaction is a secured borrowing, not a sale of receivables, so no gain or loss is recorded. The finance fee is an expense, not a loss on transfer.

Question 18

Moon Inc.factors $1,000,000 of its accounts receivables with guarantee (recourse) for a finance charge of 4%.The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments.What would be the debit to Cash in the journal entry to record this transaction?

Accepted Answer

The cash received is the accounts receivable amount minus the finance charge and the retained amount: $1,000,000 - ($1,000,000 * 4%) - ($1,000,000 * 8%) = $880,000.

Question 19

Equestrain Roads accepted a customer's $50,000 zero-interest-bearing six-month note in a sales transaction.The product sold normally sells for $46,000.If the sale was made on June 30, how much interest revenue from this transaction would be recorded for the year ending December 31?

Accepted Answer

Since the note is zero-interest-bearing, there is no interest revenue to be recorded over the six-month period. However, since the sale was made on June 30, half of the revenue ($23,000) would be recognized in the current year ending December 31. Therefore, the interest revenue to be recorded would be the difference between the sale price and the note amount, which is $4,000 ($50,000 - $46,000).

Question 20

Wilkinson Corporation factored, with guarantee (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.What amount of cash would Wilkinson receive on the sale of receivables?

Accepted Answer

The amount of cash Wilkinson would receive can be calculated as:
Amount of receivables - Finance charge - Retention amount
= $400,000 - (3% x $400,000) - (5% x $400,000)
= $400,000 - $12,000 - $20,000
= $368,000
Therefore, the correct choice is C.

Quiz 7: Cash and Receivables

Maxwell Corporation factored, with guarantee (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.What amount of cash would Maxwell receive on the sale of receivables?