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:

Self-Employment Tax

A tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves, calculated on net earnings from self-employment.

Net Earnings

The amount of money left after all deductions, including taxes and operating expenses, have been subtracted from total income.

Standard Mileage Rate

A set rate per mile that taxpayers can use to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

Vehicle Expenses

Costs incurred from the use of a vehicle for business purposes, including gas, repairs, and insurance, which may be deductible.