On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit

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?

Multiple Choice

Option A

Option B

Option C

Option D

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

Explanation / Answer

Answer:

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

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)

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