Hoff Company Uses the Allowance Method

question 49

Multiple Choice

Hoff Company uses the allowance method.An account that had been previously written-off as uncollectible was recovered.How do the two parts of the recovery (reinstate receivable and collect the receivable) affect the elements of the financial statements when the two parts are considered together?

• A)Increase total assets and stockholders' equity
• B)Increase total assets and decrease total liabilities
• C)Decrease total liabilities and increase stockholders' equity
• D)Has no effect on total assets,total liabilities or stockholders' equity

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Definitions:

Direct Materials

Direct materials are the raw materials that are directly incorporated into a finished product and are a significant portion of the total production cost.

Equivalent Unit

A measure used in cost accounting to represent a portion of a product's costs when it is partially completed.

Finished Goods Inventory

The stock of completed products ready for sale at the end of an accounting period.

Cost of Goods Manufactured

The total production cost of goods completed during a specific period, including materials, labor, and overhead costs.