Question

Multiple Choice questions (1-3) 1 tick for each correct answer.

1. The Bad debt expense account is classified as:

1. As part of cost of goods sold.
2. As a contra account.
3. As a cost to the seller for extending credit and report as operating expense.
4. Deducted from accounts receivable account on the Statement of Financial Position.

Answer: _____

2. Apperture Equipment Store uses the % of credit sales method to estimate bad debt expense. Net credit sales for the year amount to RM500,000 and management estimates 0.8% will be uncollectible. Allowance for doubtful account before adjustment has a credit balance of RM3,500. The Bad debt expense reported on the Statement of Profit or Loss will be?

1. RM10,000.
2. RM7,500.
3. RM4,000.
4. RM500.

Answer: ______

3. Using the aging of accounts receivable method to estimate bad debt expense, Urai Mountain Company estimates RM8,000 of its account receivable will be uncollectible. Before adjustment, the allowance for doubtful account has a debit balance of RM1,800. Bad debt expense to be reported on the Statement of Profit or Loss is:

1. RM 9,800
2. RM 8,000
3. RM 6,200
4. RM 1,800

Answer: _________

Answer 1

Question:1

The Answer is C. As a cost to the seller for extending credit and report as operating expense.

Explanation:

Option C is correct because bad debts expense are result of extending credit to customer and it is part of business operations. So, It is operating expense.

Remaining options are not correct because

Cost of goods sold consists of cost included in manufacturing or production.

Bad Debts expense is not a contra account.

Bad Debts expense are not deducted from accounts receivables.

Question:2

The Answer is C. RM 4,000

Explanation:

Bad Debts [ As per Credit Sales Method] = Credit Sales * % of Uncollectible = RM 500,000 * 0.8% = RM 4,000

Question:3

The Answer is A. RM 9,800

Explanation:

Allowance for Uncollectible Accounts
Beg. Balance	RM 1,800
		Bad Debts ( Balancing Figure)	RM 9,800
		End Balance	RM 8,000