The Net Effect of the Entries to Recognize the Collection

question 66

Multiple Choice

The net effect of the entries to recognize the collection of a previously written-off account under the allowance method will

• A) increase total assets and total equity.
• B) increase total equity only.
• C) decrease total assets.
• D) have no effect on total assets or total equity.

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Definitions:

Mutual Mistake

A legal concept where both parties involved in a contract have a misunderstanding about an essential fact of the agreement, potentially making the contract voidable.

Fair Market Value

The price at which an asset would exchange hands between a willing buyer and seller, each having reasonable knowledge of the relevant facts, and neither being under compulsion to transact.

Breach of Contract

Occurs when one party fails to fulfill their obligations under a contract, allowing the other party to seek legal remedies.

Unilateral Mistake

A situation in contract law where only one party is mistaken about a basic assumption on which a contract is made, which can impact the enforceability of the contract.