The Allowance Method of Recognizing Bad Debt Expense (As Opposed

question 55

Multiple Choice

The allowance method of recognizing bad debt expense (as opposed to the direct write-off method) can be applied in more than one way. What two conditions must be met before the allowance method can be used?

• A) Bad debts must be expected and material.
• B) Bad debts must be relevant and reliable.
• C) Bad debts must be consistent over time and the method used to estimate them must be consistently applied.
• D) Bad debts must be probable and estimable.

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Definitions:

Real Estate

Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water.

Impaired Note

A note receivable that has a reduced likelihood of being collected in full due to deterioration in the financial condition of the borrower.

Present Value

The present value of a sum of money or series of cash flows expected in the future, calculated using a specified discount or interest rate.

Contract Rate

It is the interest rate stated in a contract, such as a loan or lease agreement.