ch07student

Ch07student - Chapter 7 Class Notes 1 2 Nontrade Receivables Examples 1 Advances to officers and employees 2 Advances to subsidiaries 3 Deposits to

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 ...
View Full Document

This note was uploaded on 09/06/2009 for the course BUS 311 taught by Professor Staff during the Spring '08 term at IUPUI.

Ask a homework question - tutors are online