Millie's Draperies Uses the Allowance Method of Recording Bad Debts

question 40

Multiple Choice

Millie's Draperies uses the allowance method of recording bad debts.On June 13,the $200 account balance of Jane Murphy was charged off.However,on August 5,Murphy paid $80 of the amount previously written off.The entry to record the payment from Murphy would include:

• A) debit Accounts Receivable $80;credit Allowance for Doubtful Accounts $80
• B) debit Accounts Receivable $200;credit Allowance for Doubtful Accounts $200
• C) debit Allowance for Doubtful Accounts $80;credit Cash $80
• D) debit Cash $80;credit Uncollectible Accounts Expense $80

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Definitions:

Industry Average

A benchmark or average measurement of performance or financial metrics within a particular industry sector.

Insolvency

A financial state in which an entity can no longer meet its debt obligations, leading to legal consequences such as bankruptcy.

Market To Book Value

A financial ratio used to compare a company's current market price to its book value, indicating how much shareholders are paying for the net assets of a company.

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently a firm uses its equity to generate profit.