INTERMEDIATE FINANCIAL ACCOUNTING 2 TUTORIAL

2ND SESSION
FINANCIAL ASSET : CASH RECEIVABLES
TEACHING ASSISTANTS’ TEAM

PROBLEM 1 – Cash and Cash Equivalents

Identify whether the items below can be included as cash and cash equivalents.

No Description Classification

1. Coins and currency

2. Government bonds

3. Certificate of deposit (mature in 5 months)

4. Cash in bank

5. Cash set aside for bank guarantee

6. Post dated checks

7. Cash to be used for retirement of long-term

bonds

8. Deposits in transit

9. Two months time deposit

10. Sovereign debt with two months tenure

PROBLEM 2 – Various Receivable Transactions

The following information is related to Sanford SA.

July 1 Sanford SA sold to Legler Co. merchandise having a sales price of

€10,000 with terms 2/10, net/60. Sanford records its sales and
receivables net.

5 Accounts receivable of €12,000 (gross) are factored with Rothchild

Credit without guarantee at a financing charge of 9%. Cash is
received for the proceeds; collections are handled by the finance
company. (These accounts were all past the discount period.)

9 Specific accounts receivable of €9,000 (gross) are pledged to Rather

Credit Corp. as security for a loan of €6,000 at a finance charge of
6% of the amount of the loan. The finance company will make the
collections. (All the accounts receivable are past the discount

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 period.)

Dec 29 Legler Co. notifies Sanford that it is bankrupt and will pay only 10% of
its account. Give the entry to write off the uncollectible balance
using the allowance method. (Note: First record the increase in the
receivable on July 11 when the discount period passed.)

31 Sanford conducts an individual assessment of a note receivable with

a carrying value of €350,000. Sanford determines the present value of
the note is €275,000.

Instructions
Prepare all necessary entries in general journal form for Sanford SA.

PROBLEM 3 – Interest-Bearing Note

On October 1, 2022, Arden Farm Equipment Company sold a pecan-harvesting
machine to Valco Brothers Farm. In lieu of a cash payment Valco Brothers Farm
gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a note of this
type). The note required interest to be paid annually on October 1. Arden’s financial
statements are prepared on a calendar-year basis.

Instructions
Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary
journal entries for Arden Farm Equipment Company for the entire term of the note.

PROBLEM 4 – Receivable Factoring without Recourse

SEK Group factors ¥400,000 of accounts receivable with Mays Finance without
guaranteeing any payment for possible credit losses (without recourse) on July 1,
2022. The receivables records are transferred to Mays Finance, which will receive the
collections. Mays Finance assesses a finance charge of 2% of the amount of
accounts receivable and retains an amount equal to 4% of accounts receivable to
cover sales discounts, returns, and allowances. The transaction is to be recorded as
a sale.

Instructions
a. Prepare the journal entry on July 1, 2022, for SEK Group to record the sale of
receivables without recourse.
b. Prepare the journal entry on July 1, 2022, for Mays Finance to record the
purchase of receivables without recourse.

PROBLEM 5 – Financial Assets with Collective Impairment Assessment

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Tosca Corporation operates in an industry that has a high rate of bad debts. Before
any year-end adjustments, the balance in Tosca's Accounts Receivable was
$850,000 and Allowance for Expected Credit Loss (ECL) had a credit balance of
$75,000. The year-end 2022 balance reported in the statement of financial position
for Allowance for ECL will be based on the aging schedule shown below.

Days Account Outstanding Amount Probability of Collection

Less than 16 days $450,000 95%

16–30 days 200,000 88%

31–45 days 100,000 80%

46–60 days 50,000 72%

61–75 days 30,000 54%

Over 75 days 20,000 0%

The company’s policy is to write-off receivables that have been outstanding for
more than 75 days. After the implementation of PSAK 71/IFRS 9, the company must
re-assess their outstanding receivables in 2022 by new accounting standard policy.
Instructions:
a. What is the appropriate balance for Allowance for ECL at year-end 2022?
b. Show how accounts receivable would be presented on the statement of financial
position.
c. What is the dollar effect of the year-end bad debt adjustment on the before-tax
income?

PROBLEM 6 – Financial Assets with Collective Impairment Assessment

On January 1, 2022, PT Bank BTC lends 10% interest rate of Rp200,000 million to PT
Harapan Sentosa (HS). The effective interest rate on the loan is 10,3% for 5 years. As
of December 31, 2022, PT Bank BTC expects that PT HS will not be able to repay all
amounts due to the financial short-fall caused by financial problems. PT Bank BTC
and PT HS agreed to restructure the payment of the loan principal through the
expected cash flow as follows:

31 December Expected Cash Flow

2022 5.000

2023 15.000

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 2024 75.000

2025 105.000

Total 200.000

Instructions:
a. What is the amount of impairment as of December 31, 2022? How can PT Bank
BTC have objective evidence that PT HS has financial difficulties? Prepare the journal
entry!