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Chapter 7: Question ISTQ4 (page 384)

Under IFRS:

(a) the entry to record estimated uncollected accounts is the same as GAAP.

(b) loans and receivables should only be tested for impairment as a group.

(c) it is always acceptable to use the direct write-off method.

(d) all financial instruments are recorded at fair value.

Short Answer

Expert verified

Thecorrect option is a.

Step by step solution

01

Definition of Financial Instrument

A legal document containing an agreement with a monetary value is a financial instrument. It might be a cash instrument or a derivative instrument.

02

Explanation for Correct Option

The entry for recording the estimated uncollected accounts under IFRS is the same as GAAP. Journal entry is a debit to bad debt expenses and credit to provision/allowance for doubtful accounts. Thus, option a is correct.

03

Explanation for Incorrect Options

(b) Other than loans and receivables, intangible and fixed assets are also tested for impairment to prevent overstatement.

(c) Direct write-off method is used only when the business entity decides that customer will not pay. Otherwise, the allowance method is used.

(d) All financial instruments are not recorded at their fair value. Some qualification criteria are used to report the financial instrument’s fair value.

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Most popular questions from this chapter

Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment and has a face amount equal to the equipment’s list price. Each note’s stated interest rate is below the customer’s market rate at date of sale. All notes are to be collected in three equal annual installments beginning one year after sale. Some of the notes are subsequently sold to a bank with recourse, some are subsequently sold without recourse, and some are retained by Corrs. At year end, Corrs evaluates all outstanding notes receivable and provides for estimated losses arising from defaults.

Instructions

At December 31, 2017, how should Corrs measure and account for the impact of estimated losses resulting from notes receivable that it

(1) Retained and did not sell?

(2) Sold to bank with recourse?

Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable \(789,000. This balance consists of the following items:

Due from regular customer

\)523,000

Refund receivable on prior year’s income taxes (an established claim)

15,500

Travel advance to employees

22,000

Loan to wholly owned subsidiary

45,500

Advance to creditor for goods ordered

61,000

Accounts receivables assigned security for loans payable

75,000

Notes receivable past due plus interest on these notes

47,000

Total

$789,000

Illustrate how these items should be shown in the balance sheet as of December 31.

(Notes Receivable Journal Entries) On December 31, 2017, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of \(102,049, accepting \)40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.

Instructions

Prepare the entries that would be recorded by Oakbrook Inc. for the sale and the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2017.

(b) December 31, 2018.

(c) December 31, 2019.

(d) December 31, 2020.

(e) December 31, 2021.

What is the normal procedure for handling the collection of accounts receivable previously written off using the direct write-off method? The allowance method?

(Petty Cash) Carolyn Keene, Inc. decided to establish a petty cash fund to help ensure internal control over its small cash expenditures. The following information is available for the month of April.

1. On April 1, it established a petty cash fund in the amount of \(200.

2. A summary of the petty cash expenditures made by the petty cash custodian as of April 10 is as follows

Delivery charges paid on merchandise purchased

\)60

Supplies Purchased and used

25

Postage expenses

33

I.O.U from employees

17

Miscellaneous expenses

36

The petty cash fund was replenished on April 10. The balance in the fund was \(27.

3. The petty cash fund balance was increased \)100 to $300 on April 20.

Instructions

Prepare the journal entries to record transactions related to petty cash for the month of April
See all solutions

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