Question

1) Indy Sport and Hobby's Allowance for Doubtful Accounts had an unadjusted credit balance of $400. The manager estimates that $900 of the Accounts Receivable is uncollectible. Using the balance sheet approach, the year-end adjusting entry for Bad-Debts Expense includes a

a) debit to the Bad-Debts Expense account for $900.


b) credit to the Bad-Debt Expense account for $500.


c) credit to the Bad-Debts Expense account for $1,300.


d) debit to the Bad-Debts Expense account for $500.




2) Net realizable value can be defined as the


a) Gross Accounts Receivable minus the Allowance for Doubtful Accounts.


b) amount of Accounts Receivable you don't expect to collect.


c) Gross Accounts Receivable.


d) Current Bad Debts Expense

Answer 1

The correct answer to question number one is choice D.

The manager estimates that there are actually $900 in bad debts, but the books only have a balance of $400 in the Allowance for Doubtful Accounts. The entry to adjust it so that the balance will be current is $500 debit to bad debts expense and $500 credit to Allowance for Doubtful Accounts.

The correct answer to question 2 is choice A. Net realizable value is defined as the Gross Accounts Receivable minus the Allowance for Doubtful Accounts.