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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 7-1
CHAPTER 7
Cash and Receivables
ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)
Topics
Questions
Brief
Exercises
Exercises
Problems
Concepts
for Analysis
1.
1, 2, 3, 4, 23
1
1, 2
1
2.
5, 6, 7, 8, 9,
10, 11, 12,
13, 14,
2, 3, 4, 5, 6
3, 4, 5, 6,
7, 8, 9, 10,
11, 12, 16
2, 3, 4,
5, 6
1, 2, 3, 4, 5
10, 11
3.
15, 16,
7, 8, 9
13, 14
7, 8, 9
2, 4, 6, 7, 8,
9
4.
17, 18, 19,
10, 11, 12,
13, 14
12, 15, 16,
17, 18, 19,
21
10, 11
2, 7
5.
20, 21, 22
15
20, 21
*6.
23
16, 17, 18
22, 23,
24, 25
12, 13, 14
*This material is covered in an Appendix to the chapter.
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7-2 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)
Learning Objectives
Questions
Brief
Exercises
Exercises
Problems
Concepts
for
Analysis
1. Indicate how to report cash
and related items.
1, 2, 3, 4
1
1, 2
1
2. Define receivables and
explain accounting issues
related to their recognition.
5, 6
2, 3,
3, 4, 5, 6,
12, 16
6
4, 10, 11
3. Explain accounting issues
related to valuation of
accounts receivable.
7, 8, 9, 10,
11, 12, 13,
14
4, 5, 6
7, 8, 9, 10,
11, 12, 16
2, 3, 4, 5,
6
1, 3, 5, 10
4. Explain accounting issues
related to recognition and
valuation of notes
receivable.
15, 16
7, 8, 9
13, 14
7, 8, 9
2, 4, 6, 7,
8, 9
5. Explain additional
accounting issues related to
accounts and notes
receivable.
17, 18, 19,
20, 21, 22
10, 11, 12,
13, 14, 15
12, 15, 16,
17, 18, 19,
20, 21
10, 11
2, 6, 8
*6. Explain common techniques
employed to control cash.
23
16, 17, 18
22, 23, 24,
25
12, 13, 14
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 7-3
ASSIGNMENT CHARACTERISTICS TABLE
Item
Description
Level of
Difficulty
Time
(minutes)
E7.1
Determining cash balance.
Moderate
1015
E7.2
Determining cash balance.
Moderate
1015
E7.3
Financial statement presentation of receivables.
Moderate
1015
E7.4
Determining ending accounts receivable.
Simple
1015
E7.5
Recording sales gross and net.
Simple
1520
E7.6
Recording sales transactions.
Moderate
510
E7.7
Recording bad debts.
Moderate
1015
E7.8
Recording bad debts.
Simple
510
E7.9
Computing bad debts and preparing journal entries.
Simple
810
E7.10
Bad-debt reporting.
Simple
1012
E7.11
Bad debtsaging.
Simple
810
E7.12
Journalizing various receivable transactions.
Simple
1520
E7.13
Note transactions at unrealistic interest rates.
Simple
1015
E7.14
Notes receivable with unrealistic interest rate.
Moderate
2025
E7.15
Assigning accounts receivable.
Simple
1015
E7.16
Journalizing various receivable transactions.
Simple
1518
E7.17
Transfer of receivables with guarantee.
Simple
1015
E7.18
Transfer of receivables without guarantee.
Moderate
1520
E7.19
Transfer of receivables without guarantee.
Simple
1015
E7.20
Analysis of receivables.
Moderate
1015
E7.21
Transfer of receivables.
Moderate
1015
*E7.22
Petty cash.
Simple
510
*E7.23
Petty cash.
Simple
1015
*E7.24
Bank reconciliation and adjusting entries.
Moderate
1520
*E7.25
Bank reconciliation and adjusting entries.
Simple
1520
P7.1
Determine proper cash balance.
Simple
2025
P7.2
Bad-debt reporting.
Moderate
2025
P7.3
Bad-debt reportingaging.
Moderate
2030
P7.4
Bad-debt reporting.
Moderate
2535
P7.5
Bad-debt reporting.
Moderate
2030
P7.6
Journalize various accounts receivable transactions.
Moderate
2535
P7.7
Notes receivable with realistic interest rate.
Moderate
3035
P7.8
Notes receivable journal entries.
Moderate
3035
P7.9
Comprehensive receivables problem.
Complex
4050
P7.10
Assigned accounts receivablejournal entries.
Moderate
2530
P7.11
Income effects of receivables transactions.
Moderate
2025
*P7.12
Petty cash, bank reconciliation.
Moderate
2025
*P7.13
Bank reconciliation and adjusting entries.
Moderate
2030
*P7.14
Bank reconciliation and adjusting entries.
Moderate
2030
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7-4 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Item
Description
Level of
Difficulty
Time
(minutes)
CA7.1
Bad-debt accounting.
Simple
1015
CA7.2
Various receivable accounting issues.
Simple
1520
CA7.3
Bad-debt reporting issues.
Moderate
2530
CA7.4
Basic note and accounts receivable transactions.
Moderate
2530
CA7.5
Bad-debt reporting, issues
Moderate
25-30
CA7.6
Sale of notes receivable.
Moderate
2025
CA7.7
Zero-interest-bearing notes.
Moderate
2030
CA7.8
Reporting of notes receivable, interest, and sale
of receivables.
Moderate
2530
CA7.9
Accounting for zero-interest-bearing note.
Moderate
2530
CA7.10
Receivables management.
Moderate
2530
CA7.11
Bad-debt reporting.
Moderate
2530
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 7-5
ANSWERS TO QUESTIONS
1. Cash normally consists of coins and currency on hand, bank deposits, and various kinds of orders
for cash such as bank checks, money orders, travelers’ checks, demand bills of exchange, bank
drafts, and cashiers’ checks. Balances on deposit in banks which are subject to immediate with-
drawal are properly included in cash. Money market funds that provide checking account privileges
may be classified as cash. There is some question as to whether deposits not subject to immediate
withdrawal are properly included in cash or whether they should be set out separately. Savings
accounts, certificates of deposit, and time deposits fall in this latter category. Unless restrictions on
these kinds of deposits are such that they cannot be converted (withdrawn) within one year or the
operating cycle of the entity, whichever is longer, they are properly classified as current assets. At
the same time, they may well be presented separately from other cash and the restrictions as to
convertibility reported.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
2. (a) Cash (h) Investments, possibly other assets.
(b) Investments (i) Cash.
(c) Temporary investments. (j) Trading securities.
(d) Accounts receivable. (k) Cash.
(e) Accounts receivable, a loss if uncollectible. (l) Cash.
(f) Other assets if not expendable, cash if ex- (m) Postage expense, or prepaid ex-
pendable for goods and services in the for- pense, or supplies inventory.
eign country. (n) Receivable from employee if the
(g) Receivable if collection expected within one company is to be reimbursed;
year; otherwise, other asset. otherwise, prepaid expense.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
3. A compensating balance is that portion of any demand deposit maintained by a corporation which
constitutes support for existing borrowing arrangements of a corporation with a lending institution.
A compensating balance representing a legally restricted deposit held against short-term borrowing
arrangements should be stated separately among the cash and cash equivalent items. A restricted
deposit held as a compensating balance against long-term borrowing arrangements should be
separately classified as a noncurrent asset in either the investments or other assets section.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
4. Restricted cash for debt redemption would be reported in the long-term asset section, probably in
the investments section. Another alternative is the other assets section. Given that the debt is long
term, the restricted cash should also be reported as long term.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
5. The seller normally uses trade discounts to avoid frequent changes in its catalogs, to quote different
prices for different quantities purchased, and to hide the true invoice price from competitors. Trade
discounts are not recorded in the accounts because the price finally quoted is generally an
accurate statement of the fair market value of the product on that date. In addition, no subsequent
changes can occur to affect this value from an accounting standpoint. With a cash discount, the
buyer receives a choice and events subsequent to the original transaction dictate that additional
entries may be needed.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
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7-6 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 7 (Continued)
6. Two methods of recording accounts receivable are:
(1) Record receivables and sales gross.
(2) Record receivables and sales net.
The net method is desirable from a theoretical standpoint because it values the receivable at its
cash realizable value. In addition, recording the sales at net provides a better assessment of the
revenue that was recognized from the sale of the product. If the purchasing company fails to take
the discount, then the company should reflect this amount as income. The gross method for
receivables and sales is used in practice normally because it is expedient and its use does not
generally have any significant effect on the presentation of the financial statements.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
7. When companies, sell a product with a sales allowance for possible dissatisfaction or other
issues, they should record the accounts receivable and related revenue at the amount of
consideration expected to be received. The use of a Sales Returns and Allowances account is
helpful to management because it highlights the problems associated with inferior merchandise,
inefficiencies in filling orders, or delivery or shipment mistakes. Thus, since management must
estimate expected allowances to be granted in the future, which affects the final transaction price,
sales allowances result in variable consideration.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
8. The basic problems that relate to the valuation of receivables are (1) the determination of the face
value of the receivable, (2) the probability of future collection of the receivable, and (3) the length
of time the receivable will be outstanding. The determination of the face value of the receivable is
a function of the trade discount, cash discount, and certain allowance accounts such as the
Allowance for Sales Returns and Allowances.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
9. The theoretical superiority of the allowance method over the direct write-off method of accounting
for bad debts is two-fold. First, since revenue is considered to be recognized at the point of sale
on the assumption that the resulting receivables are valid liquid assets merely awaiting collection, peri-
odic income will be overstated to the extent of any receivables that eventually become uncollectible.
The proper matching of revenue and expense requires that gross sales in the income statement
be partially offset by a charge to bad debt expense that is based on an estimate of the receivables
arising from gross sales that will not be converted into cash.
Second, accounts receivable on the balance sheet should be stated at their estimated cash realiz-
able value. The allowance method accomplishes this by deducting from gross receivables the
allowance for doubtful accounts. The latter is derived from the charges for bad debt expense on
the income statement.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
10. The percentage-of-receivable method. Under this method Bad Debt Expense is debited and
Allowance for Doubtful Accounts is credited for purposes of reporting accounts receivable at their
estimated net realizable value in the balance sheet. From the stand-point of the income statement,
however, the aging method may not match accurately bad debt expenses with the sales which
caused them because the charge to bad debt expense is not based on sales. The accuracy of
both the charge t