A Company Uses the Allowance Method and Expects Not to Collect

question 81

Multiple Choice

A company uses the allowance method and expects not to collect $15,000 of sales.The journal entry to record the estimated bad debt is:

• A) \(\begin{array} { | c | l l | }
• \hline \text { Allowance for Doubtful Accounts } & \$ 15,000 & \\
• \hline \text { Bad Debt Expense } & \$ 15,000 \\
• \hline
• \end{array}\)
• B) \(\begin{array} { | r | l l | }
• \hline\text { Allowance for Doubtful Accounts } & \$ 15,000 & \\
• \hline \text { Accounts Receivable } & \$ 15,000 \\
• \hline
• \end{array}\)
• C) \(\begin{array} { | c | l c | }
• \hline\text { Accounts Receivable } & \$ 15,000 \\
• \hline \text { Allowance for Doubtful Accounts } & \$ 15,000 \\
• \hline
• \end{array}\)
• D) \(\begin{array} { | c | l c | }
• \hline\text { Bad Debt Expense } & \$ 15,000 \\
• \hline \text { Allowance for Doubtful Accounts } & \$ 15,000 \\
• \hline
• \end{array}\)

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Definitions:

No-Par Common Stock

Shares of common stock issued without a par value, which means they are not assigned a nominal face value.

Treasury Stock

Shares of a company's own stock that it has reacquired and held in the company's treasury.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock and typically does not have voting rights but has a fixed dividend.

Common Stock

A type of equity security that represents ownership shares in a corporation, providing voting rights and entitling the holder to a share of the company’s success through dividends and/or capital appreciation.