22. A company which uses the direct write-off method recognizes bad debts expens
ID: 2404709 • Letter: 2
Question
22. A company which uses the direct write-off method recognizes bad debts expense: a. As indicated by aging the accounts receivable at the end of the period b. As a percentage ofnet sales during the period c. As a percentage ofnet credit sales during the period d. As specific accounts receivable are determined to be worthless e. None of the above 23. A conceptual shortcoming in the direct write-offmethod ofaccounting for bad debts is that this method violates the a. Cost principle b. Going-concem assumption c. Matching principle d. Realization principle e. None of the above 24. The account "Allowance for Bad Debts" is an example of what type of account? a. An oners equity account on the balance sheet. b. An expense account included in the "other expenses" section ofthe income statement. c. A contra-asset account on the balance sheet. d. A contra-liability account on the balance sheet. e. None ofthe above 25. Atthe start of the current year, Belmonde Company had a credit balance in the Allowance for Doubtful Accounts of $10,000. During the year, a provision of290 of sales was made for uncollectible accounts Sales for the year were $1,000,000 and $8,000 of accounts receivable were written off as worthless. No recoveries of accounts previously written off were made during the year. The year-end financial statements should show: a. b. c. d. e. Bad Debts expense of $8,000 Bad Debts expense of $30,000 Allowance for Doubtful Accounts with a balance of $22,000 Allowance for Doubtful Accounts with a balance of $38,000 None of the above 26. Midas Company, which has an adequate amount in its Allowance for Doubtful Accounts, writes off as uncollectible an account receivable from a bankrupt customer. This action will a. b. c. d. e. Reduce total current assets Reduce net income Increase total current assets Have no effect on total current assets None of the aboveExplanation / Answer
22. The option is D i.e., The direct write off method recognises bad debt expense as a specific account receivable are determined to be worthless to take into account. and are speerately recorded to know the percentage of bad debts to be estimated every year.
23. The option is C i.e., Matching principle the direct write off method violates the matching principle as it will recognize the bad debts that related to the previous accounting period.
24.The option is C i.e., A conta-asset account on the balance sheet. The allowance for baddebts is considered in balance sheet as a contra - asset account as it is associated with account receivable and it will help to represent a true value of accounts receivable.
25.ending allowance for bad debt = beginning balance + bad debt expenses current year - write off balance
= $10,000 + ($1,000,000 * 2%) - $8,000
= $22,000 Therefore the option is C the allowance for doubtful debt is $22,000
26. The option is C Increase the total current assets The write off from uncollectible account will reduce the bad debts which in turn reduces the current assets.
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