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ay435
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Joined: 01 Jul 2010
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Posted: 05 Jul 2010 at 19:12 \| IP Logged

CPA-00365

Accounts receivable, net 1,650,000

Included in accounts receivable is $500,000 due from a customer. Special terms granted to this customer require payment in equal semiannual installments of $125,000 every April 1 and October 1.

In Trey's December 31, 1993, balance sheet, what amount should be reported as total current assets?

Current Assets/ Prelim /Dr (Cr) /Final

A/R /1,650/ (250) /1,400

The answer excluded the 250,000 from accounts receivable for current assets, is the reason the 250,000 is removed from the accounts receivable the special terms granted? If so, how should this 250,000 be generally classified, as long term assets?

mits07
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Posted: 05 Jul 2010 at 19:34 \| IP Logged

AR 1,650,000 would be reduced by 250,000 = 1,400,000

The company is expecting payment of 125,000 on 4/1 and 10/1
That would reduce your A/R account because 250,000 would be recorded

DR: Cash 250,000
CR: A/R 250,000

CanadianCPA
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Joined: 19 May 2010
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Posted: 05 Jul 2010 at 19:48 \| IP Logged

Are you sure mits07?

By doing that, it doesn't change the total amount of current assets though, you are just shifting them from one account to another.

In this case the 500,000 of AR is reduced by 250,000 because due to the special terms, we know that only 250,000 will be received this year, and the other 250,000 will be next year. I think that the subtraction of 250,000 is taking the AR out of current assets and calling them long-term receivables (or whatever you want to call them).

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mits07
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Posted: 05 Jul 2010 at 20:06 \| IP Logged

huh, good point. I guess I did not read it carefully. Anyone, what would be correct Journal Entry for this?

herbert7890
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Posted: 05 Jul 2010 at 21:26 \| IP Logged

I believe the reason you have to substract 250k is because 250,000 will be payable after the year's cycle (meaning it's a long term asset, rather than a current asset). Nonetheless, it will be become a current receivable next year ; )

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