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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Receivables Issues

Hogan Company uses the net method of accounting for sales discounts. Hogan also offers trade discounts to various groups of buyers. On August 1, 2019, Hogan factored some accounts receivable on a without-recourse basis. Hogan incurred a finance charge.

Hogan also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 2, 2019, and mature on October 1, 2020. Hogan’s operating cycle is less than one year.

Required:

  1. 1. Using the net method, how should Hogan account for the sales discounts at the date of sale? What is the rationale for the amount recorded as sales under the net method?
  2. 2.
    1. a. Using the net method, what is the effect on Hogan’s sales revenues and net income when customers do not take the sales discounts?
    2. b. What is the effect of trade discounts on sales revenues and accounts receivable? Why?
    3. c. How should Hogan account for the accounts receivable factored on August 1, 2019? Why?
    4. d. How should Hogan report the effects of the interest-bearing notes receivable on its December 31, 2019, balance sheet and on its income statement for the year ended December 31,2019? Why?

1.

To determine

State  the  manner  by which Company  H  will account sales discount at the date of sale under the net method also specify the rationale for the amount recorded as sales under net  method.

Explanation

 Company H will make an account for sale of discounts under the net method for the date of sale by recording the accounts receivables and sales rev...

2. a

To determine

State the effect of Company H‘s sales revenues and net income when the customers does not take the sales discount under the net method.

2. b

To determine

State the effect of trade discounts on sales revenue and accounts receivable.

2. c

To determine

Provide the manner by which the Company H will account for accounts receivable factored on August 1, 2019.

2. d

To determine

State the effect of interest –bearing notes receivable on its balance sheet and on its income statement for the year ended December 31, 2019.

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