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Business Accounting INTERMEDIATE ACCOUNTING (LL) W/CONNECT

(1)(a) Cash discount: A cash discount is the reduction in the amount that is to be paid by the credit customers. It is usually allowed by the seller to buyer or customer, in order to motivate the customer to pay within a specified period of time. A cash discount is often referred as sales discount. To determine: The manner in which Company H should account for the sales discount at the date of sales. Explanation: In this case, H Company uses net method for allowing sales discount at the date of sale. The company should compute the net sale by deducting the sales discounts availed and record the sales revenue and the accounts receivable accordingly. Revenue should be recorded at cash equivalent price at the date of sales. Under the net method, the sales revenue is recorded at an amount with which inventories (sales) are exchanged at the date of sale. (b) To determine: The effect on H Company’s sales revenue and net income when customers do not take the sales discounts. Explanation: Under net method, when the customers do not take the sales discounts, there is no effect on the sales revenues of the H Company. However the sales revenue of H Company is increased by the interest revenue earned (amount of sales discounts forfeited) by the company when the customers do not avail the sales discount. (2) To discuss: The effect of trade discounts on sales revenue and accounts receivable. Explanation: There is no effect of trade discounts on the sales revenues and accounts receivables of H Company. This is because trade discounts are neither recorded in the accounts nor in the financial statements. Thereby, the amount of sales revenues and accounts receivable are recorded as net of trade of trade discounts that represents the cash equivalent of the goods or services sold. (3) To Discuss: The manner in which Company H should account for the accounts receivable factored on August 1, 2018. Solution: H Company should decrease the accounts receivable for the amount of accounts receivable that are factored and increase the cash by the amount received from factoring the receivable. The difference of the amount received and the carrying value of the receivable should be recorded as a loss, to account for accounts receivable factored on August 1, 2018. This is because, factoring of accounts receivable without recourse is equivalent to a sale, as the risk and reward is transferred to the buyer. (4) To Discuss: The manner in which Company H should report the effects of the interest bearing notes receivable in its December 31, 2018 balance sheet and its income statement also explain why. Explanation: H Company should report the face value of the notes receivable and the outstanding interest on it from the period from October 1 to December 31(year-end) as current assets in its balance sheet. Both the principal (notes receivable) and the interest are due in less than one year period (From October 1, 2018 to September 30, 2019). H Company should report the accrued interest in its income statement at the appropriate rate on the notes payable from October 1 to December 31, as interest revenue. The total interest revenue is realized on the maturity date. However the accrued interest revenue for each accounting period should be recognized as an element of income over the life of the notes receivable and reported as per the matching principle.

(1)(a) Cash discount: A cash discount is the reduction in the amount that is to be paid by the credit customers. It is usually allowed by the seller to buyer or customer, in order to motivate the customer to pay within a specified period of time. A cash discount is often referred as sales discount. To determine: The manner in which Company H should account for the sales discount at the date of sales. Explanation: In this case, H Company uses net method for allowing sales discount at the date of sale. The company should compute the net sale by deducting the sales discounts availed and record the sales revenue and the accounts receivable accordingly. Revenue should be recorded at cash equivalent price at the date of sales. Under the net method, the sales revenue is recorded at an amount with which inventories (sales) are exchanged at the date of sale. (b) To determine: The effect on H Company’s sales revenue and net income when customers do not take the sales discounts. Explanation: Under net method, when the customers do not take the sales discounts, there is no effect on the sales revenues of the H Company. However the sales revenue of H Company is increased by the interest revenue earned (amount of sales discounts forfeited) by the company when the customers do not avail the sales discount. (2) To discuss: The effect of trade discounts on sales revenue and accounts receivable. Explanation: There is no effect of trade discounts on the sales revenues and accounts receivables of H Company. This is because trade discounts are neither recorded in the accounts nor in the financial statements. Thereby, the amount of sales revenues and accounts receivable are recorded as net of trade of trade discounts that represents the cash equivalent of the goods or services sold. (3) To Discuss: The manner in which Company H should account for the accounts receivable factored on August 1, 2018. Solution: H Company should decrease the accounts receivable for the amount of accounts receivable that are factored and increase the cash by the amount received from factoring the receivable. The difference of the amount received and the carrying value of the receivable should be recorded as a loss, to account for accounts receivable factored on August 1, 2018. This is because, factoring of accounts receivable without recourse is equivalent to a sale, as the risk and reward is transferred to the buyer. (4) To Discuss: The manner in which Company H should report the effects of the interest bearing notes receivable in its December 31, 2018 balance sheet and its income statement also explain why. Explanation: H Company should report the face value of the notes receivable and the outstanding interest on it from the period from October 1 to December 31(year-end) as current assets in its balance sheet. Both the principal (notes receivable) and the interest are due in less than one year period (From October 1, 2018 to September 30, 2019). H Company should report the accrued interest in its income statement at the appropriate rate on the notes payable from October 1 to December 31, as interest revenue. The total interest revenue is realized on the maturity date. However the accrued interest revenue for each accounting period should be recognized as an element of income over the life of the notes receivable and reported as per the matching principle.

Solution Summary: The author explains the effect of trade discounts on sales revenue and accounts receivables of H Company.

INTERMEDIATE ACCOUNTING (LL) W/CONNECT

INTERMEDIATE ACCOUNTING (LL) W/CONNECT

9th Edition

ISBN: 9781260679694

Author: SPICELAND

Publisher: MCG

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Chapter 7 Solutions

INTERMEDIATE ACCOUNTING (LL) W/CONNECT

Ch. 7 - Prob. 7.1Q Ch. 7 - Prob. 7.2Q Ch. 7 - Prob. 7.3Q Ch. 7 - Prob. 7.4Q Ch. 7 - Prob. 7.5Q Ch. 7 - Prob. 7.6Q Ch. 7 - Distinguish between the gross and net methods of...Ch. 7 - Briefly explain the accounting treatment for sales...Ch. 7 - Explain the typical way companies account for...Ch. 7 - Briefly explain the difference between the income...

Ch. 7 - Prob. 7.11Q Ch. 7 - Is any special accounting treatment required for...Ch. 7 - Explain any possible differences between...Ch. 7 - Prob. 7.14Q Ch. 7 - What is meant by the discounting of a note...Ch. 7 - What are the key variables that influence a...Ch. 7 - Explain how the CECL model (introduced in ASU No....Ch. 7 - Prob. 7.18Q Ch. 7 - Prob. 7.19Q Ch. 7 - (Based on Appendix 7B) Marshall Companies, Inc.,...Ch. 7 - Prob. 7.21Q Ch. 7 - Prob. 7.1BE Ch. 7 - Prob. 7.2BE Ch. 7 - Prob. 7.3BE Ch. 7 - Cash discounts; gross method LO73 On December 28,...Ch. 7 - Prob. 7.5BE Ch. 7 - Sales re turns LO74 During 2018, its first year...Ch. 7 - Sales re turns LO74 Refer to the situation...Ch. 7 - Prob. 7.8BE Ch. 7 - Prob. 7.9BE Ch. 7 - Uncollectible accounts; balance sheet approach ...Ch. 7 - Uncollectible accounts; solving for unknown LO75,...Ch. 7 - Prob. 7.12BE Ch. 7 - Note receivable LO77 On December 1, 2018,...Ch. 7 - Long-term notes receivable LO74 On April 19,...Ch. 7 - Prob. 7.15BE Ch. 7 - Factoring of accounts receivable LO78 Refer to...Ch. 7 - Prob. 7.17BE Ch. 7 - Discounting a note LO78 On March 31, Dower...Ch. 7 - Receivables turnover LO78 Camden Hardwares credit...Ch. 7 - Prob. 7.20BE Ch. 7 - Prob. 7.21BE Ch. 7 - Impairments of Accounts Receivable Appendix 7B...Ch. 7 - Credit Losses on Accounts Receivable (CECL Model) ...Ch. 7 - Prob. 7.1E Ch. 7 - Prob. 7.2E Ch. 7 - Prob. 7.3E Ch. 7 - Prob. 7.4E Ch. 7 - Trade and cash discounts; the gross method and the...Ch. 7 - Prob. 7.6E Ch. 7 - Cash discounts; the net method LO73 [This is a...Ch. 7 - Sales returns LO74 Halifax Manufacturing allows...Ch. 7 - Prob. 7.9E Ch. 7 - Prob. 7.10E Ch. 7 - Uncollectible accounts; allowance method; balance...Ch. 7 - Uncollectible accounts; allowance method and...Ch. 7 - Uncollectible accounts; allowance method; solving...Ch. 7 - Note receivable LO77 On June 30, 2018, the...Ch. 7 - Noninterest-bearing note receivable LO77 [This is...Ch. 7 - Long-term notes receivable LO77 On January 1,...Ch. 7 - Prob. 7.17E Ch. 7 - Prob. 7.18E Ch. 7 - Prob. 7.19E Ch. 7 - Factoring of accounts receivable with recourse ...Ch. 7 - Factoring of accounts receivable with recourse...Ch. 7 - Discounting a note receivable LO78 Selkirk...Ch. 7 - Concepts; terminology LO71 through LO78 Listed...Ch. 7 - Receivables; transaction analysis LO73, LO75...Ch. 7 - Prob. 7.25E Ch. 7 - Prob. 7.26E Ch. 7 - Prob. 7.27E Ch. 7 - Prob. 7.28E Ch. 7 - Prob. 7.29E Ch. 7 - Prob. 7.30E Ch. 7 - Impairments of Notes Receivable Appendix 7B At...Ch. 7 - Prob. 7.32E Ch. 7 - Prob. 7.33E Ch. 7 - Prob. 7.34E Ch. 7 - Uncollectible accounts; allowance method; income...Ch. 7 - Uncollectible accounts; Amdahl LO75 Real World...Ch. 7 - Bad debts; Nike, Inc. LO75 Real World Financials...Ch. 7 - Uncollectible accounts LO75, LO76 Raintree...Ch. 7 - Prob. 7.5P Ch. 7 - Notes receivable; solving for unknowns LO77...Ch. 7 - Prob. 7.7P Ch. 7 - Prob. 7.8P Ch. 7 - Prob. 7.9P Ch. 7 - Prob. 7.10P Ch. 7 - Prob. 7.11P Ch. 7 - Accounts and notes receivable; discounting a note...Ch. 7 - Prob. 7.13P Ch. 7 - Prob. 7.14P Ch. 7 - Prob. 7.15P Ch. 7 - Prob. 7.16P Ch. 7 - Prob. 7.17P Ch. 7 - Prob. 7.1BYP Ch. 7 - Prob. 7.2BYP Ch. 7 - Prob. 7.3BYP Ch. 7 - Real World Case 74 Sales returns; Green Mountain...Ch. 7 - Ethics Case 75 Uncollectible accounts LO75 You...Ch. 7 - Prob. 7.6BYP Ch. 7 - Prob. 7.7BYP Ch. 7 - Prob. 7.8BYP Ch. 7 - Prob. 7.9BYP Ch. 7 - Prob. 7.10BYP Ch. 7 - Prob. 7.11BYP Ch. 7 - Prob. 1CCTC

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