The Magrath Company Case Study
Not what you're looking for?
Magrath Company has an operating cycle of less than one year and provides credit terms for all of its customers, On April 1, 2011, the comany factored, without recourse, some of its accounts receivable. Magrath transferred the receivables to a financial institution, and will have no further accociation with the receivables.
Magrath uses the allowance method to account for unclooectible accounts. During 2011, some accounts were written off as uncollectible and other accounts previously written off as uncollectible were collected.
Required:
1. How should Magrath account for and report the accounts receivable factored on April 1, 2011? Why is this accounting treatment apprpriate?
2. How should Magrath account for the collection of the accounts previously written off as uncollectible?
3. What are the two basic approaches to estimating uncollectible account under the allowance method? What is the rational for each approach?
Purchase this Solution
Solution Preview
1) The company will debit cash for the amount received from the factoring of the receivables, credit AR for the total dollar of receivables factored, and then debit factoring expenses (or service fees) for the difference between the two amounts. This accounting treatment is appropriate because it writes off the value of the AR
2) The company ...
Purchase this Solution
Free BrainMass Quizzes
Learning Lean
This quiz will help you understand the basic concepts of Lean.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.