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ACCT303 Chapter 8 Homework Solutions[1]

# ACCT303 Chapter 8 Homework Solutions[1] - E8-1 Analyzing...

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1 E8-1. Analyzing accounts receivable (AICPA adapted) To find the amount of gross sales, start by determining credit sales. We can do this with the accounts receivable T-account below. Accounts Receivable Beginning AR \$80,000 \$1,000 Accounts written off Credit sales X 35,000 Cash collected Ending AR \$74,000 \$80,000 + X - \$1,000 - \$35,000 = \$74,000 X = \$30,000 = credit sales Now that we know the amount of credit sales, we can add cash sales to this amount to find gross sales. Credit sales \$30,000 Cash sales 30,000 Gross sales \$60,000 E8-10. Accounting for a securitization Requirement 1: FASB ASC 860-10-40-3 states that a financial asset should be considered sold and therefore should be derecognized if it is transferred and control is surrendered. As the problem’s specifications state this to be the case, the entry to record the sale follows: DR Cash (or receivable from SE) \$ 24,000,000 CR Accounts receivable \$20,500,000 CR Gain on sale of receivables 3,500,000 Requirement 2: When control over the receivables is not surrendered, as in this scenario, the transaction should be treated as a collateralized borrowing:

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2 DR Cash (or receivable from SE) \$ 24,000,000 CR Loan payable \$24,000,000 E8-11. Determining whether it is a real sale Years Ending December 31, 2011 2012 2013 Sales \$1,785,980 \$1,839,559 \$1,986,724 Accounts Receivable at year-end 220,189 227,896 267,094 Assuming that sales occur more or less uniformly over the course of each month, approximately 15 days, on average, lapse before invoices are mailed. Add this 15 days to the net 30 days credit terms to get average days sales in receivables that should be outstanding if all customers pay on time. The 45 days sales in receivables outstanding [365 ÷ (\$1,785,980 ÷ \$220,189)] at the end of 2011 are consistent with this explanation. Requirement 1: Sales growth Sales grew by 3% in 2012 ([\$1,839,559 - \$1,785,980] ÷ \$1,785,980), while receivables grew by 3.5% ([\$227,896 - \$220,189] ÷ \$220,189). However, sales grew by 8% in 2013 ([\$1,986,724 - \$1,839,559] ÷ \$1,839,559), while receivables grew by 17.2% ([\$267,094 - \$227,896] ÷ \$227,896). Requirement 2: Potential problems The data in 2012 do not suggest any potential problems because growth rates in sales and accounts receivable should be roughly equal in the absence of changes in sales terms, customer credit standing, or accounting methods. However,
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ACCT303 Chapter 8 Homework Solutions[1] - E8-1 Analyzing...

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