The basic problems that relate to the valuation of receivables are (1) the determination of the face value of the receivable, (2) the probability of future collection of the receivable, and (3) the length of time the receivable will be outstanding.

What are two accounting issues with accounts receivable?

Issues with accounts receivable include when to recognize revenue and initiate an accounts receivable balance for the transaction; how to estimate the amount of receivables that won’t be collected; and when to write off an amount due as uncollectible.

In what situations is it necessary to impute an interest rate for notes receivable?

An interest rate is imputed for notes receivable when 1) no interest rate is stated for the transaction or 2) the stated interest rate is unreasonable or 3) the stated face amount of the note is materially different from the current cash price for the same or similar items or from the current market value of the debt …

Why are trade discounts not recorded in the accounts like cash discounts?

Trade discounts are not recorded in the accounts because the price finally quoted is generally an accurate statement of the fair market value of the product on that date. With a cash discount, the buyer receives a choice and events subsequent to the original transaction dictate that additional entries may be needed.

What are the characteristics of a notes receivable?

Notes receivable have several defining characteristics that include principal, length of contract terms, and interest. The principal of a note is the initial loan amount, not including interest, requested by the customer. If a customer approaches a lender, requesting $2,000, this amount is the principal.

How is interest receivable decreasing on a note?

Interest Receivable decreasing (credit) reflects the 2018 interest owed from the customer that is paid to the company at the end of 2019. The second possibility is one entry recognizing principal and interest collection. If the note term does not exceed one accounting period, the entry showing note collection may not reflect interest receivable.

What happens when a customer is delinquent on a notes receivable?

When a customer is delinquent on paying a notes receivable, your company has the option to continue to attempt collection or sell the debt to a collection agency. Research the benefits and challenges with each of these options and in a short essay, answer the following questions.

Why are notes considered to be a security?

notes evidencing loans by commercial banks for current operations. The Reves decision states that this list needed more guidance. The Court starts from the position that “all notes are presumptively securities” . Then you need to need analyze whether the note fits into one of those exceptions through a four part test.