Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Question
Chapter 6, Problem 15QE
90907-6-15QE
To determine
Explain the applicable criteria to ascertain of the transfer of receivables can be recorded as a sale.
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Students have asked these similar questions
When a business factors its accounts receivables, the business
no longer has to deal with the collection of the receivables from the customers
receives cash, less an applicable fee, after the factor collects from the customers
uses the receivables as security for a loan
receives the total amount of the receivables from the factor
"Factoring" occurs when a business sells some of its accounts receivable to another insitution so it can receive cash immediately instead of having to wait until the receivables can be collected.
True or False
What is the main purpose of accounts receivable in factoring?
a.
To meet immediate cash needs of the business
b.
To create an additional guarantee of collection
c.
To invest accounts receivable in another business
d.
To establish a legal proof for future use
Chapter 6 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
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- The objectives of Receivables Management are as follows: a. All of above O b. To maintain the debtors at minimum according to the credit policy offered to customers. O C. To control the cost of receivables, cost of collection, administrative expenses, bad debts and opportunity cost of funds blocked in the receivables. O d. To obtain optimum (non maximum) value of sales;arrow_forwardThe following is a list of activities that companies perform in relation to their receivables.Match each of the activities listed below with a purpose of the activity listed below. 1. Selling receivables to a factor. select a purpose Determine to whom to extend creditEvaluate the liquidity of receivablesMonitor collectionsAccelerate cash receipts from receivable when necessaryEstablish a payment period 2. Reviewing company ratings in The Dun and Bradstreet Reference Book of American Business. select a purpose Establish a payment periodEvaluate the liquidity of receivablesMonitor collectionsDetermine to whom to extend creditAccelerate cash receipts from receivable when necessary 3. Collecting information on competitors’ payment period policies. select a purpose Establish a payment…arrow_forwardWhich of the following is a reason that banks may favor fee compensation over balance compensation? Balance compensation is not as visible as fees for budgeting purposes. The strategy involves attracting deposits to fund their loans. Earning credits used to determine the value of collected balances are taxable. Deposit balances increase liabilities on the balance sheet.arrow_forward
- What is the main purpose of factoring in accounts receivables? a. To meet immediate cash needs of the business b. To create an additional guarantee of collection c. To invest accounts receivable in another business d. To establish a legal proof for future usearrow_forwardWhich of the following statements is false regarding the different bases used for the allowance method? O A. Three bases are generally accepted, the percentage of sales, the percentage of receivables, and the direct write-off. O B. Management can choose whichever basis it prefers. o C. If management wishes to emphasize the cash realizable value of receivables it will select the percentage of receivables basis. O D. The company must determine its past experience with bad debt losses regardless of which basis it selects.arrow_forwardCompanies sometimes convert receivables to cash before they are due by selling them or using them as security for a loan. The reasons that a company may convert receivables before their due date include: (Check all that apply.) to quickly increase profit. the company needs cash. the company does not want to deal with collecting receivables. to satisfy customer's needs.arrow_forward
- Treatment of Noncash Exchanges. The acquisition of equipment by assuming a mortgage is a transaction that firms cannot report in their statement of cash flows but must report in a supplemental schedule or note. Of what value is information about this type of transaction? What is the reason for its exclusion from the statement of cash flows? Please explain without copying from another source.arrow_forward1. When using the Allowance method to account for uncollectible accounts, between the income statement approach and the balance sheet approach, which is more accurate in your opinion? Fully support your answer with sound research. 2. Can the Allowance account be used to misinterpret a company's financial results? How so? Provide at least one example of how a company might accomplish this. 3. Suppose a company accepts a Note Receivable in lieu of an Accounts Receivable. How would the company record this transaction? Provide an example and related journal entry. (You may not use the examples from the textbook.)arrow_forwardA Letter of Credit (LC) is a document that guarantees the buyer's payment to the sellers. It is issued by a bank and ensures timely and full payment to the seller. If the buyer is unable to make such a payment, the bank covers the full or the remaining amount on behalf of the buyer. Why would the bank pay the remaining amount on behalf of the buyer, and what would be the risk exposed to the bank? Please explain thoroughly.arrow_forward
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