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On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

-Which of the following describes the effects of Kincaid's entry to recognize the write-off of the uncollectible accounts?
A)Increase assets and stockholders' equity.
B)Increase assets and decrease stockholders' equity.
C)Decrease assets and stockholders' equity.
D)Does not affect assets or stockholders' equity.

Question

[The following information applies to the questions displayed below.]

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

-Which of the following describes the effects of Kincaid's entry to recognize the write-off of the uncollectible accounts?
A)Increase assets and stockholders' equity.
B)Increase assets and decrease stockholders' equity.
C)Decrease assets and stockholders' equity.
D)Does not affect assets or stockholders' equity.

Quizplus · Accepted Answer

The write-off decreases assets (accounts receivable)and increases assets (by decreasing the allowance for doubtful accounts,a contra asset account.Therefore,there is no effect on total assets or stockholders' equity.

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