{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

510chapter7fall2009afterclass1152009

# 510chapter7fall2009afterclass1152009 - Chapter 7 Cash and...

This preview shows pages 1–8. Sign up to view the full content.

Chapter 7: Cash and Chapter 7: Cash and Receivables Receivables

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
What’s Important What is cash and how is it reported? Recognition of accounts receivable Valuation of accounts receivable Recognition of notes receivable Valuation of notes receivable Disposition of notes/accounts receivable Reconciliation of bank balances
Exercise Balance Bar Co. madea loan to Bio Foods and received in exchange a 5-year, \$100,000 note bearing interest 8 percent. Themarket rate of interest for a noteof similar risk is 10 percent. How does BalanceBar record the receipt of thenote? Interest-Bearing Note Present valueof principal: \$100,000 (PVF 5, 10% ) = \$100,000 x .62092 = \$ 62,092 Present valueof Interest: \$8,000 (PVF 5, 10% ) = \$8,000 x 3.79079 = 30,326 Present valueof note \$ 92,418

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Amortization Schedule Interest-Bearing Note 10% Carrying Cash Interest Discount Amount Received Revenue Amortized of Note Date of issue 92,418 \$ End of yr. 1 8,000 9,242 \$ 1,242 \$ 93,660 End of yr. 2 8,000 9,366 1,366 95,026 End of yr. 3 8,000 9,503 1,503 96,529 End of yr. 4 8,000 9,653 1,653 98,182 End of yr. 5 8,000 9,818 1,818 100,000 40,000 47,582 7,582 Interest-Bearing Note
E7-18 On July 1, 2010, Rentoul madetwo sales. Rentoul recently had to pay 8% interest for money that it borrowed from British National Bank. Thecustomers in thesetwo transactions havecredit ratings that requirethem to borrow money at 12% interest. Record thetwo journal entries that should berecorded by Rentoul Inc. for thesales transactions below that took placeon July 1, 2010. 1. It sold land having a fair market valueof \$900,000 in exchangefor a 4 year non interest bearing promissory notein thefaceamount of \$1,416,163 Theland is carried on Rentoul’s books at a cost of \$590,000. 1. It rendered services in exchangefor a 3%, 8 year promissory notehaving a facevalueof \$400,000 (interest payableannually).

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Disposition of Accounts and Notes Receivable Owner may transfer accounts or notes receivables to another company for cash. Reasons: Competition. Sell receivables because money is tight. Billing / collection are time-consuming and costly. Transfer accomplished by: 1. Secured borrowing 2. Saleof receivables
Conditions 1.   Aretransferred assets isolated from transferor? and 2. Does transferee haveright to pledgeor sell assets? and 3. Has transferor divested itself of control through repurchase agreement?

This preview has intentionally blurred sections. Sign up to view the full version.

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

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern