Cash and Receivables
Bourbon Corp. has the following balances in its bank accounts at June 30. All the below accounts are held with the same financial institution.
Bank Account #1.............. $3,500
Bank Account #2.............. ($1,000)
Bank Account #3.............. $200
What would be reported under Current Assets and/or Current Liabilities with regards to these balances?
Cash and cash equivalents $2,700
On December 27, Cloud Corp. accepted delivery of merchandise that it purchased on account. As at December 31, Cloud had recorded the transaction, but did NOT include the merchandise in its year-end inventory. The effect of this on its December 31 financial statements would be
net income, current assets, and retained earnings were understated.
Hawkeye Ltd. holds equities securities in its portfolio and is accounting for those investments using the FV-NI method. On March 1, 2023, the company purchased 10,000 shares of a publicly traded company for $2,500,000 and paid a commission (brokerage fee) of $2,500 on the purchase transaction. What is the cost base of the investment to include for the recording of the portfolio value?
$2,500,000
$2,500,000 as the commission is expensed
The difference between the fair value and cost (carrying amount) of an asset still held (owned) by the investor.
Unrealized holding gains or losses
The following accounts were included on Mali Co.'s unadjusted trial balance at December 31, 2023:
DR Accounts receivable $850,000
CR Allowance for expected credit losses $11,000
CR Net credit sales $2,950,000
Mali estimates that 1.5 % of the gross accounts receivable will become uncollectible. After the proper adjustment at December 31, 2023, the allowance for expected credit losses should have a credit balance of
$12,750
When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?
net realizable value
On its December 31, 2023, balance sheet, Red Corp. reported a short-term investment in equity securities, under the fair value through net income model, at $330,000. At December 31, 2024, the fair value of the securities was $350,000. What should Red report on its 2024 income statement as a result of the increase in fair value of the investments during 2024?
investment income of $20,000
$350,000 – $330,000 = $20,000
A contra account relating to accounts receivable; the balance is management’s estimate of the amount that will not be collected from customers.
allowance for doubtful accounts (ADA)
Golden Arch Inc. uses the percentage of sales approach to estimate its allowance for expected credit losses. Credit sales for the year was $1,800,000 and management estimates 1.75% of credit sales to be uncollectible. What would be the balance in the allowance for expected credit losses account if the fiscal year opening balance was $40,000?
$71,500
$40,000 + ($1,800,000 * .0175)
The accountant for the Oswego chain of retail stores is getting ready to prepare the 2023 year-end inventory entries for its periodic inventory system. Her assistant has provided the following information:
Beginning inventory................. $ 88,000
Inventory purchases during year. 900,000
Ending inventory.................... 62,000
Record the journal entry(ies) that Oswego's accountant would prepare to bring the inventory and cost of goods sold up to date for 2023.
DR Ending inventory 62,000
DR Cost of goods sold 926,000
CR Beginning inventory 88,000
CR Purchases 900,000
OR
DR Cost of Goods Sold 926,000
CR Inventory 926,000
At December 31, 2023, Swift Current Inc. has the following portfolio of common shares in which it does not have significant influence:
Apple Corp. Cost = $100,000 FV = $120,000
Chester Inc. Cost = 200,000 FV = 205,000
Dooley Ltd. Cost = 300,000 FV = 500,000
Total Cost = $600,000 FV = $825,000
Assuming Swift Current uses the fair value through other comprehensive income (FV-OCI) model to account for this portfolio of investments, the most informative entry to record the year-end adjustment is
DR. FV-OCI Investments 225,000
CR Unrealized Gain or Loss-OCI 225,000
A cost formula that determines the average cost of inventory weighted by the number of units purchased at each unit cost. It is calculated as the cost of goods available for sale divided by the number of units available for sale.
Weighted average cost formula
During the year, Popsicle Inc., which uses the allowance method, made an entry to write off a $4,000 uncollectible account. Before this entry was posted, the balance in accounts receivable was $80,000 and the balance in the allowance account was $7,000. The net realizable value of accounts receivable after the write-off entry was
$73,000
($80,000 – $4,000) – ($7,000 – $4,000) = $73,000
Tehran Ltd. uses FIFO to cost its inventory. The following information is available for Tehran's inventory of product # 101:
Beginning inventory: 120 units @ $3.14 per unit
March 1: Purchase of 250 units @ $3.50 per unit
April 10: Sale of 100 units @ $5.10 per unit
Assuming Tehran uses the perpetual inventory system, the second entry to account for the April 10 sale is
debit Cost of Goods Sold and credit Inventory, $314.
On August 1, 2023, Franklin Inc. acquired $120,000 (face value) 10% bonds of Machu Corporation at 102 plus accrued interest. The bonds were dated May 1, 2023, and mature on April 30, 2026, with interest payable each October 31 and April 30. The bonds will be held to maturity. Assuming the amortized cost model is used, the entry to record the purchase of the bonds on August 1, 2023 is
Dr. Bond Investment at Amortized Cost: $120,000 × 1.02 = $122,400
Dr. Interest Receivable: $120,000 × 10% × 3 ÷ 12 = $3,000
Cr. Cash: $122,400 + $3,000 = $125,400
Amortized cost
The acquisition cost adjusted for the amortization of the discount or premium.
Sparwood Manufacturing factored $240,000 of its accounts receivable to General Factor Corp., on a without recourse basis. The receivables are transferred to General Factor, who takes over the full responsibility of collection. General Factor charged a finance charge of 4% of the dollar value of the receivables, and withheld 5% of the receivable value.
Prepare the general journal entry to reflect this transaction on Sparwood’s books.
Cash 218,400
($240,000 – $9,600 – $12,000)
Due from Factor 12,000
($240,000 x 5%)
Loss on Disposal of Receivables 9,600
($240,000 x 4%)..............
Accounts Receivable.... .... 240,000
Arizona Inc. uses the perpetual inventory system, and recorded the following data pertaining to raw material X during January 2023:
Jan 1 Inventory Cost = $4.00 On Hand = 3,200 units
Jan 11 Sold 1,600 units On Hand = 1,600
Jan 22 Purchased 4,000 units Cost = $4.70 On Hand = 5,600 units
The moving-average unit cost of raw material X inventory at January 31, 2023 is
$4.50
[(3,200 x $4) – (1,600 × $4) + (4,000 × $4.70)] ÷ 5,600 = $4.50
Iron Man Ltd. is holding a bond with a carrying value of $445,000 that is being accounted for using the amortized cost method. At the end of the reporting period, management has found indication that the bond is impaired as the interest payments for this past fiscal year have not yet been received. As a result, management has calculated the realizable amount of the bond to be $395,000 using revised cash flows and the current market rate of 6%, and $405,000 using the revised cash flows and the historical market rate of 5%. Iron Man Ltd. uses IFRS and the expected loss impairment model. What is the amount of impairment that should be recorded?
$40,000
$405,000 – $445,000 = $(40,000)
A model where the carrying amount of each FV-OCI investment is adjusted to its current fair value at each reporting date, and the holding gains and losses are recognized in other comprehensive income.
Fair value through other comprehensive income (FV-OCI)