Allowance for Doubtful Accounts Has a Debit Balance of $600

question 172

Multiple Choice

Allowance for Doubtful Accounts has a debit balance of $600 at the end of the year (before adjustment) , and an analysis of accounts in the customers ledger indicates uncollectible receivables of $13,000. Which of the following entries records the proper adjusting entry for bad debt expense?

• A) debit Bad Debt Expense, $600; credit Allowance for Doubtful Accounts, $600
• B) debit Bad Debt Expense, $12,400; credit Allowance for Doubtful Accounts, $12,400
• C) debit Allowance for Doubtful Accounts, $600; credit Bad Debt Expense, $600
• D) debit Bad Debt Expense, $13,600; credit Allowance for Doubtful Accounts, $13,600

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Definitions:

Unlevered Cost of Capital

The cost of capital for a company not taking into account its debt, essentially the return required on equity investment.

Business Risk

The exposure a company or investor faces due to uncertainties in the market or industry, impacting the company's ability to generate profits.

Financial Risk

The possibility of losing money on an investment or business venture, including risks related to currency, interest rates, and solvency.

Debt/Equity Ratio

A ratio exemplifying the balance of equity to debt in the financing structure for a company’s assets.