Lexington Company Engaged in the Following Transactions During Year 1

question 172

Multiple Choice

Lexington Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.) Acquired $6,000 cash from issuing common stock.Borrowed $4,400 from a bank.Earned $6,200 of revenues.Incurred $4,800 in expenses.Paid dividends of $800.Lexington Company engaged in the following transactions during Year 2:Acquired an additional $1,000 cash from the issue of common stock.Repaid $2,600 of its debt to the bank.Earned revenues, $9,000.Incurred expenses of $5,500.Paid dividends of $1,280.The amount of total assets on Lexington's balance sheet at the end of Year 1 was:

• A) $11,000
• B) $12,000
• C) $1,600
• D) $7,600

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Definitions:

Allowance Method

An accounting technique used to estimate uncollectible accounts receivable and adjust for bad debts.

Direct Write-Off Method

An accounting practice that involves directly writing off an outstanding receivable if deemed uncollectible, impacting earnings directly.

Adjusting Entry

Journal entries made at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Direct Write-Off Method

An accounting method used to recognize bad debts only when specific receivables are deemed uncollectible, without maintaining an allowance account.