Concept for Analysis 7-2 (Essay) Kimmel Company uses the net method of accountin

Question

Concept for Analysis 7-2 (Essay) Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts to various groups of buyer:s On August 1, 2017, Kimmel sold some accounts receivable on a without recourse basis. Kimmel incurred a finance charge Kimmel 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 1, 2017, and mature on September 30, 2019. Kimmel's operating cycle is less than one year.

Explanation / Answer

1)

kimmel has factored notes receivable, so, kimmel should decrease the amount of accounts receivable and increase the cash by the same amount and the balance or difference between the accounts receivable and cash has to be treated as loss.

As notes receivable factored on recourse basis is considered mere sale, hence the difference between accounts receivable and factored amount considered as loss.

2)

Kimmel should report the notes receivable and the interest amount as non-current asset in the current period balance sheet, since notes receivable and interest amount falls due is after the balance sheet and due date is one year more than from the balance sheet date

Interest revenue should be treated as revenue in the income statement of the current period and the interest is treated as revenue according to the life of notes receivable by the passage of the time.

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