Discussion Questions Will Be Evaluated Based On Accur 773927

Discussion Questions Will Be Evaluated Based Onaccurate Response Stat

Discussion questions will be evaluated based on: accurate response stated in student's own words. Students who merely copy an answer from the textbook, solutions manual, website, or another student will receive zero credit. Responses should be clear and concise, with proper spelling and sentence structure.

1. Briefly describe the flow of cash among receivables, cash, and marketable securities.

2. Different categories of financial assets are valued differently in the balance sheet. These valuation methods have one common goal. Explain what that goal is.

3. What are cash equivalents? Provide two examples. Why are these items often combined with cash for the purpose of balance sheet presentation?

7. Why are investments in marketable securities shown separately from cash equivalents in the balance sheet?

8. Explain the fair value adjustment procedure for marketable equity securities.

10. Explain the relationship between the matching principle and the need to estimate uncollectible accounts receivable.

11. In making the annual adjusting entry for uncollectible accounts, a company may utilize a balance sheet approach or an income statement approach. Explain these two alternative approaches.

14. Explain how each of the following is presented in a multiple-step income statement:

• a. Sales of marketable securities at a loss.
• b. Adjusting entry to create (or increase) the allowance for doubtful accounts.
• c. Entry to write off an uncollectible account against the allowance.
• d. Adjusting entry to increase the balance in the marketable securities account to a higher market value.

15. What is the formula for computing interest on a note receivable, and what does each term mean?

Paper For Above instruction

The flow of cash among receivables, cash, and marketable securities is central to understanding a company's liquidity and cash management practices. Receivables, primarily accounts receivable, represent amounts owed to the company by customers. When receivables are collected, cash increases; conversely, sales on credit decrease receivables. Marketable securities are short-term investments that can be quickly converted into cash, serving as an intermediate liquid asset. Cash is the most liquid asset, originating from collection of receivables or sale of securities, and is used for immediate operational needs. Cash flows from receivables into cash are direct, while marketable securities act as a liquidity reserve, often liquidated to meet cash requirements, thus forming a flow continuum among these assets.

Valuation of financial assets on the balance sheet varies depending on the classification of the asset. Generally, assets classified as trading securities, available-for-sale securities, or held-to-maturity securities are valued differently to reflect their nature. The common goal of these valuation methods—such as fair value or amortized cost—is to provide users with relevant, reliable information that accurately represents the asset's value at the reporting date. For example, trading securities are valued at fair market value to reflect current market conditions, whereas held-to-maturity securities are valued at amortized cost, which emphasizes the company's intent and ability to hold until maturity.

Cash equivalents are short-term, highly liquid investments that are readily convertible into cash with an insignificant risk of changes in value. Examples include Treasury bills and commercial paper. They are combined with cash in the balance sheet because they are almost as liquid as cash itself, serving similar functions in liquidity management. This aggregation simplifies financial statement presentation and provides a clearer picture of liquid resources available to the company at any moment.

Investments in marketable securities are shown separately from cash equivalents on the balance sheet because they typically differ in terms of liquidity, risk, and purpose. Cash equivalents are meant for immediate liquidity needs, whereas marketable securities may be held for investment or strategic purposes and may not be as readily available for withdrawal without potential loss. Separating these assets provides a clearer understanding of liquidity and investment strategies.

The fair value adjustment procedure for marketable equity securities involves periodically revaluating securities to reflect their current market prices. When the fair value differs from the carrying amount, an adjustment is made through a gain or loss recognized in earnings or other comprehensive income, depending on the classification of the securities. For trading securities, unrealized gains and losses are reflected in net income, whereas available-for-sale securities are adjusted through other comprehensive income until realized.

The relationship between the matching principle and estimating uncollectible accounts receivable lies in matching expenses to revenues. The matching principle dictates that estimated uncollectible accounts—expenses—should be recognized in the same period as related sales revenue. Estimating uncollectibles ensures that accounts receivable are reported at their net realizable value, aligning the expense recognition with the revenue generation for accurate financial reporting.

In estimating uncollectible accounts, a company may use either a balance sheet approach or an income statement approach. The balance sheet approach (percent of accounts receivable) estimates uncollectibles based on the receivables balance at period-end, establishing an allowance to reduce receivables to their estimated collectible amount. The income statement approach (percent of sales) estimates bad debts based on credit sales during the period, directly recognizing bad debt expense. Both methods aim to reflect the probable loss from uncollectible accounts, but they differ in focus—receivables vs. sales—providing flexibility based on management preferences.

In a multiple-step income statement, sales of marketable securities at a loss are reported as a separate component of other income or expenses, typically labeled "loss on sale of securities." Adjusting entries to increase the allowance for doubtful accounts involve debiting bad debt expense and crediting the allowance, thereby increasing the estimated uncollectible amount. Writing off an uncollectible account against the allowance involves debiting the allowance account and crediting accounts receivable, which reduces both. To increase the marketable securities account to a higher market value, an unrealized loss is recognized by debiting an unrealized loss account and crediting fair value adjustment account, reflecting the decreased value.

The formula for computing interest on a note receivable is: Interest = Principal × Rate × Time. Here, the principal is the original amount of the note, the rate is the annual interest rate expressed as a decimal or percentage, and the time is the period for which interest is calculated, typically expressed in years or fractions thereof.

References

• Beechy, R. H. (2016). Financial Accounting: An Introduction. McGraw-Hill Education.
• Gibson, C. H. (2019). Financial Reporting & Analysis. Cengage Learning.
• Higgins, R. C. (2018). Analysis for Financial Management. McGraw-Hill Education.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting. Wiley.
• Libby, T., Libby, R., & Short, D. (2019). Financial Accounting. McGraw-Hill Education.
• Nobles, W. W., Mattison, D. R., & Matsumura, K. I. (2017). Financial Accounting. Wiley.
• Wayne, T., & Maher, M. (2021). Principles of Accounting. Pearson.
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• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2021). Financial Statement Analysis. McGraw-Hill Education.