Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 16, Problem 3Q
Summary Introduction
To discuss: Whether the given statement is true or false regarding to record a credit transaction.
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Is it true that, when one firm sells to another on credit, the seller recordsthe transaction as an account receivable while the buyer records it as anaccount payable and that, disregarding discounts, the receivable typicallyexceeds the payable by the amount of profit on the sale?
What are the reasons that a company gives trade discounts?Why are trade discounts not recorded in theaccounts like cash discounts?
What is the difference between a credit sale (with a higher price as compared to the cash sale) and an interest based loan transaction? Explain it with an example.
Chapter 16 Solutions
Financial Management: Theory & Practice
Ch. 16 - Define each of the following terms:
Working...Ch. 16 - What are the two principal reasons for holding...Ch. 16 - Prob. 3QCh. 16 - Prob. 4QCh. 16 - Prob. 5QCh. 16 - Prob. 6QCh. 16 - Prob. 7QCh. 16 - Prob. 8QCh. 16 - What kinds of firms use commercial paper?
Ch. 16 - Prob. 1P
Ch. 16 - Medwig Corporation has a DSO of 17 days. The...Ch. 16 - What are the nominal and effective costs of trade...Ch. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Snider Industries sells on terms of 2/10, net 45....Ch. 16 - Calculate the nominal annual cost of trade credit...Ch. 16 - Captain Whitman Ship Supplies offers terms of...Ch. 16 - Grunewald Industries sells on terms of 2/10, net...Ch. 16 - The D.J. Masson Corporation needs to raise...Ch. 16 - Negus Enterprises has an inventory conversion...Ch. 16 - Prob. 12PCh. 16 - Payne Products had 1.6 million in sales revenues...Ch. 16 - Dorothy Koehl recently leased space in the...Ch. 16 - Prob. 15PCh. 16 - Prob. 16PCh. 16 - The Raattama Corporation had sales of 3.5 million...Ch. 16 - Start with the partial model in the file Ch16 P18...Ch. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - Is there any reason to think that RR may be...Ch. 16 - Prob. 5MCCh. 16 - Johnson knows that RR sells on the same credit...Ch. 16 - Prob. 7MCCh. 16 - Prob. 8MCCh. 16 - What is the impact of higher levels of accruals,...Ch. 16 - Assume that RR purchases $200,000 (net of...Ch. 16 - Prob. 11MCCh. 16 - Prob. 12MCCh. 16 - Prob. 13MCCh. 16 - Prob. 14MCCh. 16 - Prob. 15MCCh. 16 - In an attempt to better understand RR’s cash...
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- 19.Which of the following statements is incorrect? a. Trade receivables are recognized simultaneously with the recognition of related revenue when the criteria for revenue recognition are met. b. Under the gross price method, sales discounts are reported as a deduction from sales revenue. c. When accounts receivable are pledged against borrowing, the amount of accounts receivable pledged shall be included in the total receivables with disclosures. d. When discounting notes, the term discount period refers to the period of time that the note has been held by the endorser or payee; i.e. the period from the date of the note up to the date of discounting.arrow_forwardWhat do firms use to record the sales value of a transaction when a note receivable has either an unreasonable rate of interest or no interest rate stated?arrow_forward18. If a company employs the net method of recording accounts receivable from customers, then sales discounts taken should be reported as O a. a deduction from sales in the income statement. O b. an item of "other income and expense" in the income statement. O c. a deduction from accounts receivable in determining the net realizable value of accounts receivable. O d. should not be used.arrow_forward
- Which of the following accounts is not a contra-revenue? Group of answer choices A)Sales discounts B)Credit card discounts C)Sales returns and allowances D)Allowance for doubtful accounts E)All the above are contra-revenuesarrow_forwardWhich of the following is an advantage of using the net price method for recording cash discounts on credit sales? a. It eases communication with customers at balances. b. It properly reflects current per revenue. c. It simplifies recording of sales returns and allowances. d. It requires less recording keeping than the gross method.arrow_forwardHow does the cost of costly trade credit generally compare with the cost of shorttermbank loans?arrow_forward
- If a fictitious sale has been recorded, this affects the a) existence of sales. b) valuation of accounts receivable. c) occurrence of sales and existence of accounts receivable. d) occurrence of accounts receivable.arrow_forward44.Which is a valid statement regarding the gross price, net price and allowance methods of recording accounts receivable from customers? a. Under the gross method, sales discount is recorded when taken and this account is reported as an item of other expense in the statement of comprehensive income. b. Under the net method, sales discount is recorded when not taken and this is reported as an item of other income in the statement of comprehensive income. c. When accounts receivable have not yet been collected at the end of the year and the discount period has already lapsed, after appropriate adjusting entry(ies), the amount of net accounts receivable reported under the gross method is greater than the amount reported under the net method. d. When accounts receivable have not yet been collected at the end of the year and the discount period has already lapsed, no adjusting entry is required under the net method.arrow_forwardWhich of the following is not a correct statement? Accounts receivable represents credit sale, and thus, cannot be collected until maturity. Accounts receivable mainly consists of promissory notes and credit sales. Accounts receivable is part of the current assets. Accounts payable mainly consists of purchase of inventory on credit and notes payable. Accounts payable is part of the current liabilities.arrow_forward
- TRUE or FALSE. Under casual factoring, the difference between the carrying value of the accounts receivable and the proceeds from factoring is immediately recorded through profit or loss.arrow_forwardDistinguish trade discounts and cash discounts. (please explain throughtly and avoid plagiarsim. Thank you.)arrow_forwardPublic companies are required to use the Allowance Method to account for uncollectible Accounts Receivable. From an investor's perspective, why is this beneficial? How does the Allowance Method allow for better financial statement analysis as compared to the Direct Write-off Method?arrow_forward
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