現(xiàn)金和應(yīng)收賬款CH07CHAPTER7CASHANDRECEIVABLESASSIGNMENTCLASSIFICATIONTABLEBYTOPICBRIEFCONCEPTSTOPICSQUESTIONSEXERCISESEXERCISESPROBLEMSFORANALYSIS1ACCOUNTINGFORCASH1,2,3,4,2111,212ACCOUNTINGFORACCOUNTS5,6,7,8,9,2,3,4,53,4,5,6,2,3,4,5,1,2,3,4,RECEIVABLE,BADDEBTS,10,11,12,7,8,9,10,65,10,11OTHERALLOWANCES13,14,1511,123ACCOUNTINGFORNOTES14,156,718,198,9,106,7,8,9RECEIVABLE4ASSIGNMENTAND16,17,18,8,9,10,12,13,14,7,11,12,6,8FACTORINGOFACCOUNTS1911,1215,16,17,13RECEIVABLE215ANALYSISOFRECEIVABLES201320,2116PETTYCASHANDBANK2214,15,1622,23,12,13,14RECONCILIATIONS24,25THISMATERIALISCOVEREDINANAPPENDIXTOTHECHAPTER71SCHOOLOFMANAGEMENT,HUSTASSIGNMENTCLASSIFICATIONTABLEBYLEARNINGOBJECTIVEBRIEFLEARNINGOBJECTIVESEXERCISESEXERCISESPROBLEMS1IDENTIFYITEMSCONSIDEREDASCASH11,22INDICATEHOWTOREPORTCASHANDRELATEDITEMS13DEFINERECEIVABLESANDIDENTIFYTHEDIFFERENT3,46TYPESOFRECEIVABLES4EXPLAINACCOUNTINGISSUESRELATEDTO2,3,43,4,5,6,126RECOGNITIONOFACCOUNTSRECEIVABLE5EXPLAINACCOUNTINGISSUESRELATEDTOVALUATION57,8,9,10,2,3,4,5,6OFACCOUNTSRECEIVABLE11,126EXPLAINACCOUNTINGISSUESRELATEDTO6,7,818,198,9,10RECOGNITIONOFNOTESRECEIVABLE7EXPLAINACCOUNTINGISSUESRELATEDTOVALUATION18,1910OFNOTESRECEIVABLE8EXPLAINACCOUNTINGISSUESRELATEDTO9,10,11,1213,14,15,7,11DISPOSITIONOFACCOUNTSANDNOTESRECEIVABLE16,17,219DESCRIBEHOWTOREPORTANDANALYZE132011RECEIVABLES10EXPLAINCOMMONTECHNIQUESEMPLOYED14,15,1622,23,24,2512,13,14TOCONTROLCASH72SCHOOLOFMANAGEMENT,HUSTASSIGNMENTCHARACTERISTICSTABLELEVELOFTIMEITEMDESCRIPTIONDIFFICULTYMINUTESE71DETERMININGCASHBALANCEMODERATE1015E72DETERMINECASHBALANCEMODERATE1015E73FINANCIALSTATEMENTPRESENTATIONOFRECEIVABLESSIMPLE1015E74DETERMINEENDINGACCOUNTSRECEIVABLESIMPLE1015E75RECORDSALESGROSSANDNETSIMPLE1520E76RECORDINGSALESTRANSACTIONSMODERATE510E77RECORDINGBADDEBTSMODERATE1015E78RECORDINGBADDEBTSSIMPLE510E79COMPUTINGBADDEBTSANDPREPARINGJOURNALENTRIESSIMPLE810E710BADDEBTREPORTINGSIMPLE1012E711BADDEBTSAGINGSIMPLE810E712JOURNALIZINGVARIOUSRECEIVABLETRANSACTIONSSIMPLE1520E713ASSIGNINGACCOUNTSRECEIVABLESIMPLE1015E714JOURNALIZINGVARIOUSRECEIVABLETRANSACTIONSSIMPLE1518E715TRANSFEROFRECEIVABLESWITHRECOURSESIMPLE1015E716TRANSFEROFRECEIVABLESWITHRECOURSEMODERATE1520E717TRANSFEROFRECEIVABLESWITHOUTRECOURSESIMPLE1015E718NOTESTRANSACTIONSATUNREALISTICINTERESTRATESSIMPLE1015E719NOTESRECEIVABLEWITHUNREALISTICINTERESTRATEMODERATE2025E720ANALYSISOFRECEIVABLESMODERATE1015E721TRANSFEROFRECEIVABLESMODERATE1015E722PETTYCASHSIMPLE510E723PETTYCASHSIMPLE1015E724BANKRECONCILIATIONANDADJUSTINGENTRIESMODERATE1520E725BANKRECONCILIATIONANDADJUSTINGENTRIESSIMPLE1520P71DETERMINEPROPERCASHBALANCESIMPLE2025P72BADDEBTREPORTINGMODERATE2025P73BADDEBTREPORTINGAGINGMODERATE2030P74BADDEBTREPORTINGMODERATE2535P75BADDEBTREPORTINGMODERATE2030P76JOURNALIZEVARIOUSACCOUNTSRECEIVABLETRANSACTIONSMODERATE2535P77ASSIGNEDACCOUNTSRECEIVABLEJOURNALENTRIESMODERATE2530P78NOTESRECEIVABLEWITHREALISTICINTERESTRATEMODERATE3035P79NOTESRECEIVABLEJOURNALENTRIESMODERATE3035P710COMPREHENSIVERECEIVABLESPROBLEMCOMPLEX4050P711INCOMEEFFECTSOFRECEIVABLESTRANSACTIONSMODERATE2025P712PETTYCASH,BANKRECONCILIATIONMODERATE2025P713BANKRECONCILIATIONANDADJUSTINGENTRIESMODERATE2030P714BANKRECONCILIATIONANDADJUSTINGENTRIESMODERATE203073SCHOOLOFMANAGEMENT,HUSTASSIGNMENTCHARACTERISTICSTABLECONTINUEDCA71BADDEBTACCOUNTINGSIMPLE1015CA72VARIOUSRECEIVABLEACCOUNTINGISSUESSIMPLE1520CA73BADDEBTREPORTINGISSUESMODERATE2530CA74BASICNOTEANDACCOUNTSRECEIVABLETRANSACTIONSMODERATE2530CA75BADDEBTREPORTINGISSUESMODERATE2530CA76SALEOFNOTESRECEIVABLEMODERATE2025CA77ZEROINTERESTBEARINGNOTERECEIVABLEMODERATE2030CA78REPORTINGOFNOTESRECEIVABLE,INTEREST,ANDSALEOFMODERATE2530RECEIVABLESCA79ACCOUNTINGFORZEROINTERESTBEARINGNOTEMODERATE2530CA710RECEIVABLESMANAGEMENTMODERATE2530CA711BADDEBTREPORTING,ETHICSMODERATE253074SCHOOLOFMANAGEMENT,HUSTANSWERSTOQUESTIONS1CASHNORMALLYCONSISTSOFCOINSANDCURRENCYONHAND,BANKDEPOSITS,ANDVARIOUSKINDSOFORDERSFORCASHSUCHASBANKCHECKS,MONEYORDERS,TRAVELERSCHECKS,DEMANDBILLSOFEXCHANGE,BANKDRAFTS,ANDCASHIERSCHECKSBALANCESONDEPOSITINBANKSWHICHARESUBJECTTOIMMEDIATEWITHDRAWALAREPROPERLYINCLUDEDINCASHMONEYMARKETFUNDSTHATPROVIDECHECKINGACCOUNTPRIVILEGESMAYBECLASSIFIEDASCASHTHEREISSOMEQUESTIONASTOWHETHERDEPOSITSNOTSUBJECTTOIMMEDIATEWITHDRAWALAREPROPERLYINCLUDEDINCASHORWHETHERTHEYSHOULDBESETOUTSEPARATELYSAVINGSACCOUNTS,TIMECERTIFICATESOFDEPOSIT,ANDTIMEDEPOSITSFALLINTHISLATTERCATEGORYUNLESSRESTRICTIONSONTHESEKINDSOFDEPOSITSARESUCHTHATTHEYCANNOTBECONVERTEDWITHDRAWNWITHINONEYEARORTHEOPERATINGCYCLEOFTHEENTITY,WHICHEVERISLONGER,THEYAREPROPERLYCLASSIFIEDASCURRENTASSETSATTHESAMETIME,THEYMAYWELLBEPRESENTEDSEPARATELYFROMOTHERCASHANDTHERESTRICTIONSASTOCONVERTIBILITYREPORTED2ACASHHINVESTMENTS,POSSIBLYOTHERASSETSBTRADINGSECURITIESICASH8CTEMPORARYINVESTMENTSJTRADINGSECURITIESDACCOUNTSRECEIVABLEKCASHEACCOUNTSRECEIVABLE,ALOSSIFUNCOLLECTIBLELCASHFOTHERASSETSIFNOTEXPENDABLE,CASHIFEXMPOSTAGEEXPENSE,ORPREPAIDEXPENDABLEFORGOODSANDSERVICESINTHEFORPENSE,OROFFICESUPPLIESINVENTORYEIGNCOUNTRYNRECEIVABLEFROMEMPLOYEEIFTHEGRECEIVABLEIFCOLLECTIONEXPECTEDWITHINONECOMPANYISTOBEREIMBURSEDYEAROTHERWISE,OTHERASSETOTHERWISE,PREPAIDEXPENSE3ACOMPENSATINGBALANCEISTHATPORTIONOFANYCASHDEPOSITMAINTAINEDBYANENTERPRISEWHICHCONSTITUTESSUPPORTFOREXISTINGBORROWINGARRANGEMENTSWITHALENDINGINSTITUTIONACOMPENSATINGBALANCEREPRESENTINGALEGALLYRESTRICTEDDEPOSITHELDAGAINSTSHORTTERMBORROWINGARRANGEMENTSSHOULDBESTATEDSEPARATELYAMONGTHECASHANDCASHEQUIVALENTITEMSARESTRICTEDDEPOSITHELDASACOMPENSATINGBALANCEAGAINSTLONGTERMBORROWINGARRANGEMENTSSHOULDBESEPARATELYCLASSIFIEDASANONCURRENTASSETINEITHERTHEINVESTMENTSOROTHERASSETSSECTION4RESTRICTEDCASHFORDEBTREDEMPTIONWOULDBEREPORTEDINTHELONGTERMASSETSECTION,PROBABLYINTHEINVESTMENTSSECTIONANOTHERALTERNATIVEISTHEOTHERASSETSSECTIONGIVENTHATTHEDEBTISLONGTERM,THERESTRICTEDCASHSHOULDALSOBEREPORTEDASLONGTERM5THESELLERNORMALLYUSESTRADEDISCOUNTSTOAVOIDFREQUENTCHANGESINITSCATALOGS,TOQUOTEDIFFERENTPRICESFORDIFFERENTQUANTITIESPURCHASED,ANDTOHIDETHETRUEINVOICEPRICEFROMCOMPETITORSTRADEDISCOUNTSARENOTRECORDEDINTHEACCOUNTSBECAUSETHEPRICEFINALLYQUOTEDISGENERALLYANACCURATESTATEMENTOFTHEFAIRMARKETVALUEOFTHEPRODUCTONTHATDATEINADDITION,NOSUBSEQUENTCHANGESCANOCCURTOAFFECTTHISVALUEFROMANACCOUNTINGSTANDPOINTWITHACASHDISCOUNT,THEBUYERRECEIVESACHOICEANDEVENTSSUBSEQUENTTOTHEORIGINALTRANSACTIONDICTATETHATADDITIONALENTRIESMAYBENEEDED6TWOMETHODSOFRECORDINGACCOUNTSRECEIVABLEARE1RECORDRECEIVABLESANDSALESGROSS2RECORDRECEIVABLESANDSALESNET75SCHOOLOFMANAGEMENT,HUSTQUESTIONSCHAPTER7CONTINUEDTHENETMETHODISDESIRABLEFROMATHEORETICALSTANDPOINTBECAUSEITVALUESTHERECEIVABLEATITSNETREALIZABLEVALUEINADDITION,RECORDINGTHESALESATNETPROVIDESABETTERASSESSMENTOFTHEREVENUETHATWASEARNEDFROMTHESALEOFTHEPRODUCTIFTHEPURCHASINGCOMPANYFAILSTOTAKETHEDISCOUNT,THENTHECOMPANYSHOULDREFLECTTHISAMOUNTASINCOMETHEGROSSMETHODFORRECEIVABLESANDSALESISUSEDINPRACTICENORMALLYBECAUSEITISEXPEDIENTANDITSUSEDOESNOTGENERALLYHAVEANYSIGNIFICANTEFFECTONTHEPRESENTATIONOFTHEFINANCIALSTATEMENTS7THEBASICPROBLEMSTHATRELATETOTHEVALUATIONOFRECEIVABLESARE1THEDETERMINATIONOFTHEFACEVALUEOFTHERECEIVABLE,2THEPROBABILITYOFFUTURECOLLECTIONOFTHERECEIVABLE,AND3THELENGTHOFTIMETHERECEIVABLEWILLBEOUTSTANDINGTHEDETERMINATIONOFTHEFACEVALUEOFTHERECEIVABLEISAFUNCTIONOFTHETRADEDISCOUNT,CASHDISCOUNT,ANDCERTAINALLOWANCEACCOUNTSSUCHASTHEALLOWANCEFORSALESRETURNSANDALLOWANCES8THETHEORETICALSUPERIORITYOFTHEALLOWANCEMETHODOVERTHEDIRECTWRITEOFFMETHODOFACCOUNTINGFORBADDEBTSISTWOFOLDFIRST,SINCEREVENUEISCONSIDEREDTOBERECOGNIZEDATTHEPOINTOFSALEONTHEASSUMPTIONTHATTHERESULTINGRECEIVABLESAREVALIDLIQUIDASSETSMERELYAWAITINGCOLLECTION,PERIODICINCOMEWILLBEOVERSTATEDTOTHEEXTENTOFANYRECEIVABLESTHATEVENTUALLYBECOMEUNCOLLECTIBLETHEPROPERMATCHINGOFREVENUEANDEXPENSEREQUIRESTHATGROSSSALESINTHEINCOMESTATEMENTBEPARTIALLYOFFSETBYACHARGETOBADDEBTEXPENSETHATISBASEDONANESTIMATEOFTHERECEIVABLESARISINGFROMGROSSSALESTHATWILLNOTBECONVERTEDINTOCASHSECOND,ACCOUNTSRECEIVABLEONTHEBALANCESHEETSHOULDBESTATEDATTHEIRESTIMATEDNETREALIZABLEVALUETHEALLOWANCEMETHODACCOMPLISHESTHISBYDEDUCTINGFROMGROSSRECEIVABLESTHEALLOWANCEFORDOUBTFULACCOUNTSTHELATTERISDERIVEDFROMTHECHARGESFORBADDEBTEXPENSEONTHEINCOMESTATEMENT9THEPERCENTAGEOFSALESMETHODUNDERTHISMETHODBADDEBTEXPENSEISDEBITEDANDALLOWANCEFORDOUBTFULACCOUNTSISCREDITEDWITHAPERCENTAGEOFTHECURRENTYEARSCREDITORTOTALSALESTHERATEISDETERMINEDBYREFERENCETOTHERELATIONSHIPBETWEENPRIORYEARSCREDITORTOTALSALESANDACTUALBADDEBTSARISINGTHEREFROMCONSIDERATIONSHOULDALSOBEGIVENTOCHANGESINCREDITPOLICYANDCURRENTECONOMICCONDITIONSALTHOUGHTHERATESHOULDTHEORETICALLYBEBASEDONANDAPPLIEDTOCREDITSALES,THEUSEOFTOTALSALESISACCEPTABLEIFTHERATIOOFCREDITSALESTOTOTALSALESDOESNOTVARYSIGNIFICANTLYFROMYEARTOYEARTHEPERCENTAGEOFSALESMETHODOFPROVIDINGFORESTIMATEDUNCOLLECTIBLERECEIVABLESISINTENDEDTOCHARGEBADDEBTEXPENSETOTHEPERIODINWHICHTHECORRESPONDINGSALESARERECORDEDANDIS,THEREFORE,DESIGNEDFORTHEPREPARATIONOFAFAIRINCOMESTATEMENTDUETOANNUALLYINSIGNIFICANTBUTCUMULATIVELYSIGNIFICANTERRORSINTHEEXPERIENCERATEWHICHMAYRESULTINEITHERANEXCESSIVEORINADEQUATEBALANCEINTHEALLOWANCEACCOUNT,HOWEVER,THISMETHODMAYNOTACCURATELYREPORTACCOUNTSRECEIVABLEINTHEBALANCESHEETATTHEIRESTIMATEDNETREALIZABLEVALUETHISCANBEPREVENTEDBYPERIODICALLYREVIEWINGAND,IFNECESSARY,ADJUSTINGTHEBALANCEINTHEALLOWANCEACCOUNTTHEMATERIALITYOFANYSUCHADJUSTMENTWOULDGOVERNITSTREATMENTFORREPORTINGPURPOSESTHENECESSITYOFSUCHADJUSTMENTSOFTHEALLOWANCEACCOUNTINDICATESTHATBADDEBTEXPENSESHAVENOTBEENACCURATELYMATCHEDAGAINSTRELATEDSALESFURTHER,EVENWHENTHEEXPERIENCERATEDOESNOTRESULTINANEXCESSIVEORINADEQUATEBALANCEINTHEALLOWANCEACCOUNT,THISMETHODTENDSTOHAVEASMOOTHINGEFFECTONREPORTEDPERIODICINCOMEDUETOYEARTOYEARDIFFERENCESBETWEENTHEAMOUNTSOFBADDEBTWRITEOFFSANDESTIMATEDBADDEBTS76SCHOOLOFMANAGEMENT,HUSTQUESTIONSCHAPTER7CONTINUEDTHEAGINGMETHODWITHTHISMETHODEACHYEARSDEBITTOTHEEXPENSEACCOUNTANDCREDITTOTHEALLOWANCEACCOUNTAREDETERMINEDBYANEVALUATIONOFTHECOLLECTIBILITYOFOPENACCOUNTSRECEIVABLEATTHECLOSEOFTHEYEARANANALYSISOFTHEACCOUNTSACCORDINGTOTHEIRDUEDATESISTHEUSUALPROCEDUREFOREACHOFTHEAGECATEGORIESESTABLISHEDINTHEANALYSIS,AVERAGEPERCENTAGERATESMAYBEDEVELOPEDONTHEBASISOFPASTEXPERIENCEANDAPPLIEDTOTHEACCOUNTSINTHERESPECTIVEAGECATEGORIESTHISMETHODMAYALSOUTILIZEINDIVIDUALANALYSISFORSOMEACCOUNTS,ESPECIALLYTHOSETHATARECONSIDERABLYPASTDUE,INARRIVINGATESTIMATEDUNCOLLECTIBLERECEIVABLESONTHEBASISOFTHEFOREGOINGANALYSISTHEBALANCEINTHEVALUATIONACCOUNTISTHENADJUSTEDTOTHEAMOUNTESTIMATEDTOBEUNCOLLECTIBLETHISMETHODOFPROVIDINGFORUNCOLLECTIBLEACCOUNTSISQUITEACCURATEFORPURPOSESOFREPORTINGACCOUNTSRECEIVABLEATTHEIRESTIMATEDNETREALIZABLEVALUEINTHEBALANCESHEETFROMTHESTANDPOINTOFTHEINCOMESTATEMENT,HOWEVER,THEAGINGMETHODMAYNOTMATCHACCURATELYBADDEBTEXPENSESWITHTHESALESWHICHCAUSEDTHEMBECAUSETHECHARGETOBADDEBTEXPENSEISNOTBASEDONSALESTHEACCURACYOFBOTHTHECHARGETOBADDEBTEXPENSEANDTHEREPORTEDVALUEOFRECEIVABLESDEPENDSONTHECURRENTESTIMATEOFUNCOLLECTIBLEACCOUNTSTHEACCURACYOFTHEEXPENSECHARGE,HOWEVER,ISADDITIONALLYDEPENDENTUPONTHETIMINGOFACTUALWRITEOFFS10AMAJORPARTOFACCOUNTINGISTHEMEASUREMENTOFFINANCIALDATACHANGESINVALUESSHOULDBERECOGNIZEDASSOONASTHEYAREMEASURABLEINOBJECTIVETERMSINORDERFORACCOUNTINGTOPROVIDEUSEFULINFORMATIONONAPERIODICBASISTHEVERYEXISTENCEOFACCOUNTSRECEIVABLEISBASEDONTHEDECISIONTHATACREDITSALEISANOBJECTIVEINDICATIONTHATREVENUESHOULDBERECOGNIZEDTHEALTERNATIVEISTOWAITUNTILTHEDEBTISPAIDINCASHIFREVENUEISTOBERECOGNIZEDANDANASSETRECORDEDATTHETIMEOFACREDITSALE,THENEEDFORFAIRNESSINTHESTATEMENTSREQUIRESTHATBOTHEXPENSESANDTHEASSETBEADJUSTEDFORTHEESTIMATEDAMOUNTSOFTHEASSETTHATEXPERIENCEINDICATESWILLNOTBECOLLECTEDTHEARGUMENTMAYBEPERSUASIVETHATTHEEVIDENCESUPPORTINGWRITEOFFSPERMITSAMOREACCURATEDECISIONTHANTHATWHICHSUPPORTSTHEALLOWANCEMETHODTHELATTERMETHOD,HOWEVER,IS“OBJECTIVE”INTHESENSEINWHICHACCOUNTANTSUSETHETERMANDISJUSTIFIEDBYTHENEEDFORFAIRPRESENTATIONOFRECEIVABLESANDINCOMETHEDIRECTWRITEOFFMETHODISNOTWHOLLYOBJECTIVEITREQUIRESTHEUSEOFJUDGMENTINDETERMININGWHENANACCOUNTHASBECOMEUNCOLLECTIBLE11BECAUSEESTIMATIONOFTHEALLOWANCEREQUIRESJUDGMENT,MANAGEMENTCOULDEITHEROVERESTIMATEORUNDERESTIMATETHEAMOUNTOFUNCOLLECTIBLEACCOUNTSDEPENDINGONWHETHERAHIGHERORLOWEREARNINGSNUMBERISDESIREDFOREXAMPLE,SUNTRUSTBANKREFERREDTOINTHECHAPTERWASHAVINGAVERYPROFITABLEYEARBYOVERESTIMATINGTHEAMOUNTOFBADDEBTS,SUNTRUSTCOULDRECORDAHIGHERALLOWANCEANDEXPENSE,THEREBYREDUCINGINCOMEINTHECURRENTYEARINASUBSEQUENTYEAR,WHENEARNINGSARELOW,THEYCOULDUNDERESTIMATETHEALLOWANCE,RECORDLESSEXPENSEANDGETABOOSTTOEARNINGS12THERECEIVABLEDUEFROMKISHWAUKEECOMPANYSHOULDBEWRITTENOFFTOANAPPROPRIATELYNAMEDLOSSACCOUNTANDREPORTEDINTHEINCOMESTATEMENTASPARTOFINCOMEFROMOPERATIONSNOTETHATTHEPROFESSIONSPECIFICALLYEXCLUDESWRITEOFFSOFRECEIVABLESFROMBEINGEXTRAORDINARYINTHISCASE,CLASSIFICATIONASANUNUSUALITEMWOULDSEEMAPPROPRIATETHELOSSMAYPROPERLYBEREDUCEDBYTHEPORTIONOFTHEALLOWANCEFORDOUBTFULACCOUNTSATTHEENDOFTHEPRECEDINGYEARTHATWASALLOCABLETOTHEKISHWAUKEECOMPANYACCOUNTESTIMATESFORDOUBTFULACCOUNTSAREBASEDONAFIRMSPRIORBADDEBTEXPERIENCEWITHDUECONSIDERATIONGIVENTOCHANGESINCREDITPOLICYANDFORECASTEDGENERALORINDUSTRYBUSINESSCONDITIONS77SCHOOLOFMANAGEMENT,HUSTQUESTIONSCHAPTER7CONTINUEDTHEPURPOSEOFTHEALLOWANCEMETHODISTOANTICIPATEONLYTHATAMOUNTOFBADDEBTEXPENSEWHICHCANBEREASONABLYFORECASTEDINTHENORMALCOURSEOFEVENTSITISNOTINTENDEDTOANTICIPATEBADDEBTLOSSESWHICHAREABNORMALANDNONRECURRINGINNATURE13IFTHEDIRECTWRITEOFFMETHODISUSED,THEONLYALTERNATIVEISTODEBITCASHANDCREDITAREVENUEACCOUNTENTITLEDUNCOLLECTIBLEAMOUNTSRECOVEREDIFTHEALLOWANCEMETHODISUSED,THENTHEACCOUNTANTMAYDEBITACCOUNTSRECEIVABLEANDCREDITTHEALLOWANCEFORDOUBTFULACCOUNTSANENTRYISTHENMADETOCREDITTHECUSTOMERSACCOUNTANDDEBITCASHUPONRECEIPTOFTHEREMITTANCE14THEJOURNALENTRYONJOHNSINGERSBOOKSWOULDBENOTESRECEIVABLE1,000,000DISCOUNTONNOTESRECEIVABLE380,000SALESREVENUE620,000ASSUMESTHATSELLERISADEALERINTHISPROPERTYIFNOT,THEPROPERTYMIGHTBECREDITED,ANDALOSSONSALEOF70,000WOULDBERECOGNIZED15IMPUTEDINTERESTISTHEINTERESTASCRIBEDORATTRIBUTEDTOASITUATIONORCIRCUMSTANCEWHICHISVOIDOFASTATEDOROTHERWISEAPPROPRIATEINTERESTFACTORIMPUTEDINTERESTISTHERESULTOFAPROCESSOFINTERESTRATEESTIMATIONCALLEDIMPUTATIONANINTERESTRATEISIMPUTEDFORNOTESRECEIVABLEWHEN1NOINTERESTRATEISSTATEDFORTHETRANSACTION,OR2THESTATEDINTERESTRATEISUNREASONABLE,OR3THESTATEDFACEAMOUNTOFTHENOTEISMATERIALLYDIFFERENTFROMTHECURRENTCASHPRICEFORTHESAMEORSIMILARITEMSORFROMTHECURRENTMARKETVALUEOFTHEDEBTINSTRUMENTINIMPUTINGANAPPROPRIATEINTERESTRATE,CONSIDERATIONSHOULDBEGIVENTOTHEPREVAILINGINTERESTRATESFORSIMILARINSTRUMENTSOFISSUERSWITHSIMILARCREDITRATINGS,THECOLLATERAL,ANDRESTRICTIVECOVENANTS16ACOMPANYMIGHTSELLRECEIVABLESBECAUSEMONEYISTIGHTANDACCESSTONORMALCREDITISNOTAVAILABLEORPROHIBITIVELYEXPENSIVEALSO,ACOMPANYMAYHAVETOSELLITSRECEIVABLES,INSTEADOFBORROWING,TOAVOIDVIOLATINGEXISTINGLENDINGARRANGEMENTSINADDITION,BILLINGANDCOLLECTIONOFRECEIVABLESAREOFTENTIMECONSUMINGANDCOSTLY17AFINANCIALCOMPONENTSAPPROACHISUSEDWHENRECEIVABLESARESOLDBUTTHEREISCONTINUINGINVOLVEMENTBYTHESELLERINTHERECEIVABLEEXAMPLESOFCONTINUINGINVOLVEMENTARERECOURSEPROVISIONSORCONTINUINGRIGHTSTOSERVICETHERECEIVABLEATRANSFEROFRECEIVABLESSHOULDBERECORDEDASASALEWHENTHEFOLLOWINGTHREECONDITIONSAREMETATHETRANSFERREDASSETHASBEENISOLATEDFROMTHETRANSFERORPUTBEYONDREACHOFTHETRANSFERORANDITSCREDITORSBTHETRANSFEREESHAVEOBTAINEDTHERIGHTTOPLEDGEOREXCHANGEEITHERTHETRANSFERREDASSETSORBENEFICIALINTERESTSINTHETRANSFERREDASSETSCTHETRANSFERORDOESNOTMAINTAINEFFECTIVECONTROLOVERTHETRANSFERREDASSETSTHROUGHANAGREEMENTTOREPURCHASEORREDEEMTHEMBEFORETHEIRMATURITY18RECOURSEISAGUARANTEEFROMHALETHATIFANYOFTHESOLDRECEIVABLESAREUNCOLLECTIBLE,HALEWILLPAYTHEFACTORFORTHEAMOUNTOFTHEUNCOLLECTIBLEACCOUNTTHISRECOURSEOBLIGATIONREPRESENTSCONTINUINGINVOLVEMENTBYHALEAFTERTHESALEUNDERTHEFINANCIALCOMPONENTSMODEL,THEESTIMATEDFAIRVALUEOFTHERECOURSEOBLIGATIONWILLBEREPORTEDASALIABILITYONHALESBALANCESHEET78SCHOOLOFMANAGEMENT,HUSTQUESTIONSCHAPTER7CONTINUED19SEVERALACCEPTABLESOLUTIONSAREPOSSIBLEDEPENDINGUPONASSUMPTIONSMADEASTOWHETHERCERTAINITEMSARECOLLECTIBLEWITHINTHEOPERATINGCYCLEORNOTTHEFOLLOWINGILLUSTRATESONEPOSSIBILITYCURRENTASSETSACCOUNTSRECEIVABLETRADEOFWHICHACCOUNTSINTHEAMOUNTOF75,000HAVEBEENASSIGNEDASSECURITYFORLOANSPAYABLE523,00075,000598,000FEDERALINCOMETAXREFUNDRECEIVABLE15,500ADVANCEPAYMENTSONPURCHASES61,000INVESTMENTSADVANCETOSUBSIDIARY45,500OTHERASSETSTRAVELADVANCETOEMPLOYEE22,000NOTESRECEIVABLEPASTDUEPLUSACCRUEDINTEREST27,00020THEACCOUNTSRECEIVABLETURNOVERRATIOISCOMPUTEDBYDIVIDINGNETSALESBYAVERAGENETRECEIVABLESOUTSTANDINGDURINGTHEYEARTHISRATIOISUSEDTOASSESSTHELIQUIDITYOFTHERECEIVABLESITMEASURESTHENUMBEROFTIMES,ONAVERAGE,RECEIVABLESARECOLLECTEDDURINGTHEPERIODITPROVIDESSOMEINDICATIONOFTHEQUALITYOFTHERECEIVABLESANDHOWSUCCESSFULTHECOMPANYISINCOLLECTINGITSOUTSTANDINGRECEIVABLES21BECAUSETHERESTRICTEDCASHCANNOTBEUSEDBYHAWTHORNTOMEETCURRENTOBLIGATIONS,ITSHOULDNOTBEREPORTEDASACURRENTASSETITSHOULDBEREPORTEDININVESTMENTSOROTHERASSETSTHUS,ALTHOUGHTHISITEMHASCASHINITSLABEL,ITSHOULDNOTBEREFLECTEDINLIQUIDITYMEASURES,SUCHASTHECURRENTORACIDTESTRATIOS221THEGENERALCHECKINGACCOUNTISTHEPRINCIPALBANKACCOUNTOFMOSTCOMPANIESANDFREQUENTLYTHEONLYBANKACCOUNTOFSMALLCOMPANIESMOSTIFNOTALLTRANSACTIONSARECYCLEDTHROUGHTHEGENERALCHECKINGACCOUNT,EITHERDIRECTLYORONANIMPRESTBASIS2IMPRESTBANKACCOUNTSAREUSEDTODISBURSECASHCHECKSFORASPECIFICPURPOSE,SUCHASDIVIDENDS,PAYROLL,COMMISSIONS,ORTRAVELEXPENSESMONEYISDEPOSITEDINTHEIMPRESTFUNDFROMTHEGENERALFUNDINANAMOUNTNECESSARYTOCOVERASPECIFICGROUPOFDISBURSEMENTS3LOCKBOXACCOUNTSARELOCALPOSTOFFICEBOXESTOWHICHAMULTILOCATIONCOMPANYINSTRUCTSITSCUSTOMERSTOMAILREMITTANCESALOCALBANKISAUTHORIZEDTOEMPTYTHEBOXDAILYANDCREDITTHECOMPANYSACCOUNTSFORCOLLECTIONS79SCHOOLOFMANAGEMENT,HUSTSOLUTIONSTOBRIEFEXERCISESBRIEFEXERCISE71CASHINBANKSAVINGSACCOUNT63,000CASHONHAND9,300CHECKINGACCOUNTBALANCE17,000CASHTOBEREPORTED89,300BRIEFEXERCISE72JUNE1ACCOUNTSRECEIVABLE40,000SALES40,000JUNE12CASH38,800SALESDISCOUNTS1,200ACCOUNTSRECEIVABLE40,00040,00040,000X0338,800BRIEFEXERCISE73JUNE1ACCOUNTSRECEIVABLE38,800SALES38,800JUNE12CASH38,800ACCOUNTSRECEIVABLE38,80040,00040,000X0338,800710SCHOOLOFMANAGEMENT,HUSTBRIEFEXERCISE74BADDEBTEXPENSE24,000ALLOWANCEFORDOUBTFULACCOUNTS24,0001,200,000X2