Stephen Is Restoring a Car and Has Already Spent $4,000

question 121

Multiple Choice

Stephen is restoring a car and has already spent $4,000 on the restoration.He expects to be able to sell the car for $5800.Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers.He could also sell the car now,without completing the additional work,for $3,800.What should he do?

• A)He should sell the car now for $3,800.
• B)He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800.
• C)He should complete the additional work and sell the car for $5,800.
• D)It does not matter which action he takes since the outcome will be the same either way.

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Definitions:

Accounts Receivable

Money owed to a business by its clients or customers for goods or services rendered on credit.

Allowance for Doubtful Accounts

An estimation of the amount of accounts receivable that is not expected to be collected.

Subsidiary Ledger

A ledger that contains accounts of a single type. Example: The accounts receivable subsidiary ledger records all credit customers.

Uncollectible

Refers to accounts receivable that are unlikely to be recovered from debtors.