Intermediate Accounting Review Chapter 7 1 Cash Cash equivalents 2 AR a Trade and cash discounts Gross vs Net Method b Valuation of AR i Allowance method Bad debt expense and AFDA ii Percentage of receivables vs Percentage of sales 3 Notes receivables a There are several examples 4 Disposition of AR and NR a Secured borrowing factoring with and without recourse TVM for AR short term Do not record AR at present value Do not consider TVM for receivables Ex 1 Cash in Bank Checking Acct 18 500 Cash on hand 500 Post dated checks received totaling 3 500 and certificates of deposit totaling 124 000 How much should be reported as cash on BS Post dated checks are a receivable and CD s are a receivable 2 months to 10 years B 18 500 500 19 000 Bank overdraft is another method You can have another account with cash or petty cash Ex 2 2 sales March 1 20 000 and 30 000 under credit terms of 3 10 and n 30 Payment for the 20 000 sales was received March 10 Payment for the 30 000 sales was received on March 25 Under the gross method and the net method net sales in the March IS should appear as which of the following accounts Gross Method NR 50 Sales 50 M10 Point of Discount will not take Cash 19 400 Sales Disc 600 AR 20 000 M35 Point of Received Cash 30 AR 30 What is Net Sales Gross Sales Disc 49 400 Net Cash Only receive 97 3 discount 600 Sales Sales Discount Net Sales Cash Sales Discount AR Gross Method Sales can be reported as NI MAY ASK Net Sales Entry Net Method Point of Sales AR 48 500 Sales 48 500 M10 Point of Received Cash 19 400 AR 19 400 M25 Point of Discount will take Cash 30 000 AR 29 100 Sales Disc 900 Ex 3 Allowance for Uncollectable Accounts was 190 000 at the end of 2013 and 180 000 at the end of 2011 At year ended December 31 2012 Nenn reported bad debt expense of 26 000 in IS What amount did Nenn debit to the appropriate account in 2012 to write off actual bad debts Understand the entries to record bad debt expense write off and collection of previously written accounts BDE credit allowance for doubtful accounts AFDA w o 16 180 BDE 26 190 w o 180 26 190 16 BDE AFDE 26 w o AFDA AR AR AFDA Cash AR 26 x x x x Ex 4 On Jan 1 2014 West Co exchanged equipment for 600 000 zero interest bearing note due on Jan 1 2017 The prevailing rate of interest for a note of this type at Jan 1 2014 was 10 The present value of 1 at 10 for 3 periods is 0 75 What amount of interest revenue should be included in West s 2015 IS C 49 500 TVM Concept Carrying Value x Market Rate Interest Revenue 450 first year 600 last year NR x PV 3 periods Equipment NR Equipment Discount on NR NR 600 Equipment Disc On NR 450 150 Interest Revenue 2014 450 x 10 45 2015 450 45 x 10 49 500 For 2016 you can do the same and multiply by the same discount Chapter 8 Review Chapter 9 Review 1 LCM Cost to Market RC Ceiling Floor a Why do we use LC and how do we apply b Applying LCM to individual items groups total inventory 2 Recognizing loss with Market Cost a COGS method vs Allowance method 3 Valuation bases a Valuation at NRV under specific conditions b Lump sum purchase Using relative market value i Allocate into different groups ii Relative value of items c Purchase commitments 4 Gross profit method a Gross profit on Sales vs Markup on cost i How to convert markup ii Applying the two methods iii EI BI Purch COGS 5 Retail inventory Method a Cost include markdowns b LCM excludes markdowns c LIFO Cost Retail ratio is obtained separately for BI and additions i Markdowns are included Ex 1 Keen Company s accounting records indicated the following info Inv Jan 1 2012 900 000 Purchases 2012 4 500 000 Sales 2012 5 700 000 5 700 000 x 0 75 4 275 000 COGS 900 000 4 500 000 4 250 000 1 050 000 75 000 Ending Inv 1 125 900 5 500 4 275 Ex 2 Markdowns are not included in LCM Ratio 70 Ending inv at retail 1 150 000 10 000 260 000 EI at Cost 260 x 0 70 168 000 980 000 1 400 000 0 70