Question

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method of accounting for uncollectible accounts. In February of Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050.

Which of the following answers correctly states the effect of Loudoun’s recording the reestablishment of the receivable on April 4, Year 2?

Assets

=

Liab.

+

Equity

Rev.

−

Expenses

=

Net Inc.

Cash Flow

A.

NA

=

1,050

+

(1,050

)

NA

−

1,050

=

(1,050

)

NA

B.

1,050

=

NA

+

1,050

1,050

−

NA

=

1,050

1,050

OA

C.

(1,050

)

=

NA

+

(1,050

)

NA

−

1,050

=

(1,050

)

NA

D.

NA

=

NA

+

NA

NA

−

NA

=

NA

NA

Multiple Choice

Option A

Option B

Option C

Option D

Answer 1

Answer:

Journal Entry
Date	Accounts	Debit $	Credit $	Accounts	Comment
December 31, Year 1	Profit and Loss account	3,375		Expenses
	Provision for uncollectible debtors		3,375	Assets(Reduced from Debtors)
	(3% of its credit sales of $112,500 )
February of Year 2,	Provision for uncollectible debtors	1,050		Assets(Reduced from Debtors)
	Debtors		1,050	Assets
	(Bad debts recognized)
April 4, Year 2	Debtors	1,050		Assets	Reestablishment of the receivables. An asset is increased as well as another asset is decreased.
	Provision for uncollectible debtors		1,050	Assets(Reduced from Debtors)	Reestablishment of the receivables. An asset is increased as well as another asset is decreased.
	(Bad debts recovered)
	Cash	1,050		Assets
	Debtors		1050	Assets
	(Cash received)

Since an asset is increased as well as another asset is decreased, Option D is correct.