IFA, IL 01, FR222
Intermediate Financial Accounting
Topic:
Cash and Receivables
(Theory +MCQ + Math & Previous Year Questions)
Mizanur Robel,
WhatsApp: +8801710500610
[Link]
ICMAB Previous Year Questions Scenario 2021 Syllabus
January_2022 May_2022 Sept_2022 January_2023 May_2023 Sept_2023 January_2024 May_2024
-- -- 4-c 5-a 4-b -- 6-b --
Reporting Cash
Although the reporting of cash is relatively straightforward, a number of issues merit special
attention. These issues relate to the reporting of:
1. Cash equivalents.
2. Restricted cash.
3. Bank overdrafts.
Cash Equivalents
A current classification that has become popular is “Cash and cash equivalents.” Cash equivalents
are short-term, highly liquid investments that are both (a) readily convertible to known amounts
of cash, and (b) so near their maturity that they present insignificant risk of changes in value
because of changes in interest rates.
Restricted Cash
Petty cash, payroll, and dividend funds are examples of cash set aside for a particular purpose. In
most situations, these fund balances are not material. Therefore, companies do not segregate
them from cash in the financial statements. When material in amount, companies segregate
restricted cash from “regular” cash for reporting purposes. Companies classify restricted cash
either in the current assets or in the long-term assets section, depending on the date of availability
or disbursement.
Bank Overdrafts
Bank overdrafts occur when a company writes a check for more than the amount in its cash
account. Companies should report bank overdrafts in the current liabilities section, adding them
to the amount reported as accounts payable.
RECEIVABLES
Like cash, receivables are also financial assets. Receivables (often referred to as loans and
receivables) are claims held against customers and others for money, goods, or services. An
example of a loan is a financial institution like Wells Fargo providing funds to Tesla. An example
of a receivable is a company like GoPro recording an account receivable when it sells a camera
on account to one of its retailers.
Direct Write-Off Method for Uncollectible Accounts
Under the direct write-off method, when a company determines a particular account to be
uncollectible, it charges the loss to Bad Debt Expense. Assume, for example, that on December 10
Cruz Co. writes off as uncollectible Yusado’s $8,000 balance. The entry is:
December 10
Bad Debt Expense 8,000
Accounts Receivable (Yusado) 8,000
(To record write-off of Yusado account)
NOTES RECEIVABLE
A note receivable is supported by a formal promissory note, a written promise to pay a certain
sum of money at a specific future date. Such a note is a negotiable instrument that a maker signs
in favor of a designated payee who may legally and readily sell or otherwise transfer the note to
others. Although all notes contain an interest element because of the time value of money,
companies classify them as interest-bearing or noninterest- bearing. Interest-bearing notes have
a stated rate of interest. Zero-interestbearing notes (non-interest-bearing) include interest as
part of their face amount. Notes receivable are considered fairly liquid, even if long-term, because
companies may easily convert them to cash (although they might pay a fee to do so).
MCQ-
01. The receivable that is usually evidenced by a formal instrument of credit is a(n)
a. trade receivable.
b. note receivable.
c. accounts receivable.
d. income tax receivable.
02. Which of the following receivables would not be classified as an "other receivable"?
a. Advance to an employee
b. Refundable income tax
c. Notes receivable
d. Interest receivable
03. Notes or accounts receivables that result from sales transactions are often called
a. sales receivables.
b. non-trade receivables.
c. trade receivables.
d. merchandise receivables.
04. The term "receivables" refers to
a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
05. A cash discount is usually granted to all of the following except
a. retail customers.
b. retailers.
c. wholesalers.
d. All of these are granted discounts.
06. Which one of the following is not a primary problem associated with accounts receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Disposing of accounts receivable
07. Trade accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at net realizable value.
d. only if they are not past due
08. Which of the following is not a part of ‘cash and cash equivalents’ in a cashbook?
a. Special investments
b. Cheques
c. Money orders
d. Coins
09. Inventories, cash and equivalents, and accounts receivables are listed as
A) Earnings on Income Statement
B) Payments on Income Statement
C) Assets on the Balance Sheet
D) Liabilities on the Balance Sheet
10. Which of the following item is considered as cash equivalents:
(a) Bank Overdraft
(b) Bills Receivable
(c) Debtors
(d) Short-term Investment
11. Which of the following item is not considered as cash equivalents ?
(a) Bank Overdraft
(b) Commercial Papers
(c) Treasury Bills
(d) Investment
12. Current asset that can be transferred into cash within three months is known as:
(a) Cash equivalent
(b) Intangible asset
(c) Liquid asset
(d) Cash asset
Math-
01) CMA Examination- January 2024:/Same as June 2021
The December 31, 20X5, Balance Sheet of Smart Inc. reported the following:
Accounts receivable Tk. 162,000
Allowance for doubtful accounts Tk. 3,400
Each account had its normal debt or credit balance. Smart Tch uses the allowance method for
estimating bad debts expense. During 20X6, Smart Tch made sales on account totalling Tk.
240,000 and cash sales of Tk. 46,000. Customer payments on account during 20X6 were Tk.
210,000. Accounts receivables written off as worthless during the year totalled Tk. 2,300. Accounts
receivables totalling Tk. 4,000 which were written off during 20X5, were subsequently collected in
20X6. Tk. 4,000 is included in the Tk.210,000 of cash collections from customers.
Required:
(i) Prepare the journal entry to record the write off of accounts receivable in 20X6. What
effect does the write off of accounts receivable have on total current assets?
(ii) Prepare the journal entry to record the collection of accounts receivable in 20X6 that
had been written off in 20X5.
(iii) Calculate the balances in the Accounts receivable and allowance for doubtful accounts
at the end of 20X6, prior to the recording of bad debt expense for 20X6.
02) CMA Examination- January 2023:
Erickson Company had a Tk.300 credit balance in Allowance for Doubtful Accounts at December
31, 20XX, before the current year's provision for uncollectible accounts. An aging of the accounts
receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts Tk.170,000 1%
1–30 days past due 15,000 3%
31–60 days past due 12,000 6%
61–90 days past due 5,000 15%
Over 90 days past due 9,000 30%
Total Accounts Receivable Tk.211,000
Required:
(i) Prepare the adjusting entry on December 31, 20XX, to recognize bad debts expense.
(ii) Assume the same facts as above except that the Allowance for Doubtful Accounts account
had a Tk.300 debit balance before the current year's provision for uncollectible accounts.
Prepare the adjusting entry for the current year's provision for uncollectible accounts.
03) CMA Examination- May 2023/ December 2019:
Below are three unrelated scenarios:
(i) On July 1, a one-year note for Tk.120,000 was accepted in exchange for an unpaid accounts
receivable for Tk.120,000. Interest for 5% would be payable at maturity.
(ii) On July 1, a one-year non-interest-bearing note for Tk.110,250 was accepted in exchange for
an unpaid accounts receivable for Tk.105,000. The market rate of interest at that time was 5%.
(iii) On July 1, a one-year 10% note for Tk.115,000 was accepted in exchange for an unpaid
accounts receivable Tk.104,545 from a higher-risk customer. The customer’s borrowing interest
rate at that time was 10%.
Requirements:
(i) Prepare the entries to recognize the notes payable and accrued interest, if any. The year-end
is December 31.
(ii) Assume that for item (iii) above, the borrower faces financial difficulties and can only pay 75%
of the note’s maturity amount. After a thorough analysis, the creditor determines that the 25%
remaining is uncollectible. Prepare the entry for the note at maturity.
04) CMA Examination- September 2022:/ Same as December 2020
AB Company has recorded the following items in its financial records. Cash in bank $ 42,000; Cash
in plant expansion fund 100,000; Cash on hand 12,000; highly liquid investments 34,000; Petty
cash 500; Receivables from customers 89,000; Stock investments 61,000. The highly liquid
investments had maturities of 3 months or less when they were purchased. The stock investments
will be sold in the next 6 to 12 months. The plant expansion project will begin in 3 years.
Required:
What amount should AB report as “Cash and cash equivalents” on its balance sheet?
05) CMA Examination- June 2021:
Checking account balance Tk.700,000; cash restricted for future plant expansion Tk. 500,000;
short-term Treasury bills Tk.180,000; cash advance received from customer Tk.900 (not included
in checking account balance); cash advance of Tk.7,000 to company executive, payable on
demand; refundable deposit of Tk.26,000 paid to the government to guarantee performance on
construction contract. Determine the amount that should be reported as cash. If the item(s) is not
reported as cash, explain the rationale.
06) CMA Examination- June 2021: /Same as January-2024
The December 31, 20X0, Balance Sheet of S&S Techno Inc. reported the following:
Accounts receivable Tk. 170,000
Allowance for doubtful accounts Tk. 4,300
Each account had its normal debit or credit balance. S&S Techno uses the allowance method for
estimating bad debts expense. During 20X1, S&S Techno made sales on account totalling
Tk.250,000 and cash sales of Tk.64,000. Customer payments on account during 20X1 were
Tk.220,000. Accounts receivable written off as worthless during the year totalled Tk.4,200.
Accounts receivable totalling Tk.7,000, which were written off during 20X0, were subsequently
collected in 20X1. The Tk.7,000 is included in the Tk.220,000 of cash collections from customers.
Required:
(1) Prepare the journal entry to record the write off of accounts receivable in 20X1. What effect
does the write off of accounts receivable have on total current assets?
(2) Prepare the journal entry to record the collection of accounts receivable in 20X1 that had been
written off in 20X0.
07) CMA Examination- December 2020:
H Company uses an imprest petty cash system. The fund was established on March 1 with a
balance of $100. During March, the following petty cash receipts were found in the petty cash
box.
Date Receipt No. For Amount
March 5 1 Stamp Inventory $39
7 2 Freight-Out 21
9 3 Miscellaneous Expense 6
11 4 Travel Expense 24
14 5 Miscellaneous Expense 5
The fund was replenished on March 15 when the fund contained $2 in cash. On March 20,
the amount in the fund was increased to $175.
Required:
Journalize the entries in March that pertain to the operation of the petty cash fund.
08) CMA Examination- December 2020:/Same as September 2022
AB Company has recorded the following items in its financial records.
Cash in bank $ 42,000
Cash in plant expansion fund 100,000
Cash on hand 12,000
Highly liquid investments 34,000
Petty cash 500
Receivables from customers 89,000
Stock investments 61,000
The highly liquid investments had maturities of 3 months or less when they were purchased. The
stock investments will be sold in the next 6 to 12 months. The plant expansion project will begin
in 3 years.
Required:
What amount should AB report as “Cash and cash equivalents” on its balance sheet?
09) CMA Examination- June 2020:
The chief accountant for Dollywood Corporation provides you with the following list of accounts
receivable written off in the current year.
Date Customer Amount
March 31 E. L. Masters Company Tk.7,800
June 30 Hocking Associates 9,700
September 30 Amy Lowell’s Dress Shop 7,000
December 31 R. Bronson, Inc. 9,830
Dollywood Corporation follows the policy of debiting Bad Debt Expense as accounts are written
off. The chief accountant maintains that this procedure is appropriate for financial statement
purposes because the National Board of Revenue will not accept other methods for recognizing
bad debts. All of Dollywood Corporation’s sales are on a 30-day credit basis. Sales for the current
year total Tk.2,400,000, and research has determined that bad debt losses approximate 2% of
sales.
Required:
(1) Do you agree or disagree with Dollywood’s policy concerning recognition of bad debt
expense? Why or why not?
(2) By what amount would net income differ if bad debt expense was computed using the
percentage-of -sales approach?
10) CMA Examination- June 2020:
The balance sheet of Starsky Company at December 31, 20x4, includes the following.
Notes receivable Tk.36,000
Accounts receivable 182,100
Less: Allowance for doubtful accounts 17,300 200,800
Transactions in 20x4 include the following:
(1) Accounts receivable of Tk.138,000 were collected including accounts of Tk.60,000 on which 2%
sales discounts were allowed.
(2) Tk.5,300 was received in payment of an account which was written off the books as worthless
in 20x4.
(3) Customer accounts of Tk.17,500 were written off during the year.
(4) At year-end, Allowance for Doubtful Accounts was estimated to need a balance of Tk.20,000.
This estimate is based on an analysis of aged accounts receivable.
Required:
Prepare all journal entries necessary to reflect the transactions above.
11) Francis Equipment Co. closes its books regularly on December 31, but at the end of 2017
it held its cash book open so that a more favorable balance sheet could be prepared for
credit purposes. Cash receipts and disbursements for the first 10 days of January were
recorded as December transactions. The information is given below.
1. January cash receipts recorded in the December cash book totaled $45,640, of which $28,000
represents cash sales, and $17,640 represents collections on account for which cash discounts of
$360 were given.
2. January cash disbursements recorded in the December check register liquidated accounts
payable of $22,450 on which discounts of $250 were taken.
3. The ledger has not been closed for 2017.
4. The amount shown as inventory was determined by physical count on December 31, 2017.
The company uses the periodic method of inventory.
Instructions
Prepare any entries you consider necessary to correct Francis’s accounts at December 31.
[Kieso, P7-1]
12) Manilow Corporation operates in an industry that has a high rate of bad debts. Before any
year-end adjustments, the balance in Manilow’s Accounts Receivable account was
$555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000. The year-
end balance reported in the balance sheet for Allowance for Doubtful Accounts will be
based on the aging schedule shown below.
Instructions
(a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
(b) Show how accounts receivable would be presented on the balance sheet.
(c) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?
[Kieso, P7-3]
13) The petty cash fund of Fonzarelli’s Auto Repair Service, a sole proprietorship, contains
the following.
The general ledger account Petty Cash has a balance of $300.
Instructions
Prepare the journal entry to record the reimbursement of the petty cash fund.
[Kieso, E7-23]
