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ch07student - Chapter 7 Class Notes 1 2 Nontrade...

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Unformatted text preview: Chapter 7 Class Notes 1 2 Nontrade Receivables Examples: 1. Advances to officers and employees. 2. Advances to subsidiaries. 3. Deposits to cover potential damages or losses. 4. Deposits as a guarantee of performance or payment. 5. Dividends and interest receivable. 3 Example: On June 3, Benedict Corp. sold to Chester Inc., merchandise having a sale price of $5,000 with terms of 2/10,n/60, f.o.b. shipping point. On June 12, Benedict received a check for the balance due from Chester. Prepare required journal entries assuming Benedict records the sale at gross. (try this) 4 Example: On June 3, Benedict Corp. sold to Chester Inc., merchandise having a sale price of $5,000 with terms of 2/10,n/60, f.o.b. shipping point. On June 12, Benedict received a check for the balance due from Chester. Prepare required journal entries assuming Benedict records the sale at net. net. (try this) Example: On June 3, Benedict Corp. sold to Chester Inc., merchandise having a sale price of $5,000 with terms of 2/10,n/60, f.o.b. shipping point. On June 29, Benedict received a check for the balance due from Chester. Prepare required journal entries assuming Benedict records the sale at net. (try this) Nonrecognition of Interest Element A company should measure receivables in terms of their present value. In practice, companies ignore interest revenue related to accounts receivable because the amount of the discount is not usually material. 5 6 7 8 9 (try this below) 10 (try this) Summary Percentage of Sales approach: Bad debt expense estimate is related to a nominal account (Sales), any balance in the allowance account is ignored. Therefore, the method achieves a proper matching of cost and revenues. Percentage of Receivables approach: Results in a more accurate valuation of receivables on the balance sheet. Method may also be applied using an aging schedule. 11 Generally originate from: Customers who need to extend the payment period of an outstanding receivable High-risk or new customers Loans to employees and subsidiaries Sales of property, plant, and equipment Lending transactions (the majority of notes) 12 (try this use - PV tables or your calculator or ???) 13 Amortization Schedule Non-Interest-Bearing Note 6% Interest Revenue $ 4,484 4,753 5,038 5,340 5,660 25,274 Carrying Amount of Note $ 74,726 79,210 83,962 89,000 94,340 100,000 Cash Received Date of issue End of yr. 1 End of yr. 2 End of yr. 3 End of yr. 4 End of yr. 5 - Discount Amortized $ 4,484 4,753 5,038 5,340 5,660 25,274 Journal Entries for Non-Interest-Bearing note (try this) 14 (try this on your own) 15 16 (try this) 17 18 19 20 ...
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