1. What is the normal procedure for handling the collection of accounts receivable previously written off using the direct write off method? The allowance method?
2. On January 1, 2012, Lombard Co. sells property for which it had paid $690,000 to Sargent Company, receiving in return Sargent’s zero interest bearing note for $1,000,000 payable in 5 years. What entry would Lombard make to record the sale, assuming that Lombard frequently sells similar items of property for a cash sales price of $640,000?
3. What is “imputed interest”? In what situations is it necessary to impute an interest rate for notes receivable? What are the considerations in imputing an appropriate interest rate?
4. What is the fair value option? Where do companies that elect the fair value option report unrealized holding gains and losses?
5. Indicate three reasons why a company might sell its receivables to another company.