1.
(a) Prepare
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
1.
Explanation of Solution
Accounts receivable:
Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.
(a) Prepare journal entry to record the given transactions by assuming that Person W is using U.S GAAP.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 1,2016 | Cash (2) | 126,400 | |
Assignment service charge expense (1) | 1,600 | ||
Notes payable | 128,000 | ||
(To record transfer of accounts receivable) |
Table (1)
- Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $126,400.
- Assignment service charge expense is a component of
stockholder’s equity and there is an increase in the value of expense. Hence, debit the assignment service charge expense by $1,600. - Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $128,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 1,2016 | Accounts receivable assigned | 160,000 | |
Accounts receivable | 160,000 | ||
(To record the transfer of accounts receivable to accounts receivable assigned account) |
Table (2)
- Accounts receivable assigned is an asset and there is an increase in the value of an asset. Hence, debit account receivable assigned account by $160,000.
- Accounts receivable is an asset and there is a decrease in the value of an asset. Hence, credit the account receivable account by $160,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 11,2016 | Return liability | 1,000 | |
Accounts receivable assigned | 1,000 | ||
(To record the sales returns on credit merchandise) |
Table (3)
- Return liability is a liability and there is a decrease in the value of liability. Hence, debit the liability by $1,000.
- Accounts receivable assigned is an asset and there is a decrease in the value of asset. Hence, credit the asset by $1,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 31,2016 | Cash | 86,000 | |
Accounts receivable assigned | 86,000 | ||
(To record the cash collected on transfer of accounts receivable) |
Table (4)
- Cash is an asset and there is an increase in the value of asset. Hence, debit the cash by $86,000.
- Accounts receivable assigned is an asset and there is a decrease in the value of asset. Hence, credit the accounts receivable assigned by $86,000.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
December 31,2016 | Notes payable | 86,000 | |
Interest expense | 1,280 | ||
Cash | 87,280 | ||
(To record the interest collected on transfer of accounts receivable) |
Table (5)
- Notes payable is a liability and there is a decrease in the value of liability. Hence, debit the notes payable by $86,000.
- Interest expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the interest expense by $1,280.
- Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $87,280.
Working notes:
(1) Calculate the Assignment service charges expense:
(2) Calculate the amount of cash:
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
Company W will report the transfer of accounts receivable under the head current asset with an amount of $73,000 and will report the return liability as notes payable under the head current liabilities with an amount of $42,000.
2.
(a) Prepare journal entry to record the given transactions by assuming that Company W is using IFRS.
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
2.
Explanation of Solution
(a) Prepare journal entry to record the given transactions by assuming that Company W is using IFRS.
Date | Account Title and Explanation | Debit | Credit |
December 1,2016 | Cash (4) | 126,400 | |
Factory expense (3) | 1,600 | ||
Receivables from factor (5) | 32,000 | ||
Accounts receivable | 160,000 | ||
(To record the loss on sale of receivables without recourse liability) |
Table (6)
- Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $126,400
- Factory expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the factory expense by $1,600.
- Receivables from factor are an asset and there is an increase in the value of asset. Hence, debit the receivables from factor by $32,000.
- Accounts receivable is an asset and there is a decrease in the value of asset. Hence, credit the accounts receivables by $160,000.
Date | Account Title and Explanation | Debit | Credit |
December 11,2016 | Return liability | 1,000 | |
Receivables from factor | 1,000 | ||
( To record occurrence of sales returns and allowances on factored accounts) |
Table (7)
- Return liability is a liability and there is a decrease in the value of liability. Hence, debit the liability by $1,000.
- Receivables from factor are an asset and there is a decrease in the value of asset. Hence, credit the receivables from factor by $1,000.
Date | Account Title and Explanation | Debit | Credit |
December 31,2016 | Cash | 86,000 | |
Payable to factor | 86,000 | ||
( To record the amount payable to factor on transfer of accounts receivable) |
Table (8)
- Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $86,000.
- Payable on factor is a liability and there is an increase in the value of liability. Hence, credit the payable to factor by $86,000.
Date | Account Title and Explanation | Debit | Credit |
December 31,2016 | Payable to factor | 86,000 | |
Cash | 86,000 | ||
( To record the payment of interest on transfer of accounts receivable) |
Table (9)
- Payable on factor is a liability and there is a decrease in the value of liability. Hence, debit the payable to factor by $86,000.
- Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $86,000.
Working notes:
(3) Calculate the loss on sale of receivables:
(4) Calculate the amount of cash:
(5) Calculate the receivables from factor:
(b) Specify the manner by which the given agreement will be reported on Company W’s December 31, 2016, balance sheet by assuming that note is payable in short term.
Company W will report the transfer of accounts receivable as receivables from factor under the head current asset with an amount of $31,000.
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Chapter 6 Solutions
Intermediate Accounting: Reporting and Analysis
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT