Exhibit 15-2 Lawrence, Inc., Entered into a Subscription Contract with Several Subscribers

question 15

Multiple Choice

Exhibit 15-2
Lawrence, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2,000 shares of $5 par common stock for $15 a share. The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full.
-Refer to Exhibit 15-2. The initial entry to record this subscription and the down payment would include:

• A) a credit to Common Stock Subscribed for $10,000.
• B) a credit to Additional Paid-in Capital from Subscribed Stock for $10,000.
• C) a debit to Subscriptions Receivable: Common Stock for $30,000.
• D) a debit to Cash for $2,000.

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Definitions:

Direct Write-off Method

An accounting practice where uncollectible accounts receivable are directly written off against income at the time they are deemed uncollectible.

Uncollectible Receivables

Debts owed to a company that are considered impossible or highly unlikely to be paid, often written off as bad debt.

Bad Debt Expense

An estimated expense that represents the amount of receivables that a company does not expect to collect due to customers' inability to pay.

Allowance for Doubtful Accounts

An estimation of the amount of accounts receivable that may not be collectible, serving as a contra asset account.