Newton Company Uses the Allowance Method of Accounting for Uncollectible

question 132

Multiple Choice

Newton Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Newton Company wrote off the $3,000 uncollectible account of its customer, P. Best. On July 10, Newton received a check for the full amount of $3,000 from Best. On July 10, the entry or entries Newton makes to record the recovery of the bad debt is:

• A) \(\begin{array}{|l|r|r|}
• \hline \text { Accounts Receivable - P. Best } & 3,000 & \\
• \hline \text { Allowance for Doubtful Accounts } & & 3,000 \\
• \hline \text { Cash } & 3,000 & \\
• \hline \text { Accounts Receivable - P. Best } & & 3,000 \\
• \hline
• \end{array}\)
• B) \(\begin{array}{|l|r|r|}
• \hline \text { Cash } & 3,000 & \\
• \hline \text { Bad Debts Expense } & & 3,000 \\
• \hline
• \end{array}\)
• C) \(\begin{array}{|l|r|r|}
• \hline \text { Accounts Receivable - P. Best } & 3,000 & \\
• \hline \text { Bad Debts Expense } & & 3,000 \\
• \hline \text { Cash } & 3,000 & \\
• \hline \text { Accounts Receivable - P. Best } & & 3,000 \\
• \hline
• \end{array}\)
• D) \(\begin{array}{|c|r|r|}
• \hline \text { Allowance for Doubtful Accounts } & 3,000 & \\
• \hline \text { Accounts Receivable - P. Best } & & 3,000 \\
• \hline \text { Accounts Receivable-P. Best } & 3,000 & \\
• \hline \text { Cash } & & 3,000 \\
• \hline
• \end{array}\)
• E) \(\begin{array}{|l|r|r|}
• \hline \text { Cash } & 3,000 & \\
• \hline \text { Accounts Receivable-P. Best } & & 3,000 \\
• \hline
• \end{array}\)

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Definitions:

Cumulative Preferred Shares

Type of preferred stocks where dividends accumulate if not paid in a given year, and must be paid out before common stock dividends can resume.

Surplus (Deficit)

The financial position that results when total revenues exceed (surplus) or are less than (deficit) total expenses.

Consolidated Balance Sheet

A financial statement that presents the assets, liabilities, and shareholders' equity of a parent company and its subsidiaries as one entity.

Cash

Money in the form of coins or banknotes, especially that held by an organization as its liquid assets.