On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following correctly states the effect of Loudoun's recording the reestablishment of the receivable on April 4, Year 2?

Question

Quizplus · Accepted Answer

Option A correctly states the effect of Loudoun's recording the reestablishment of the receivable on April 4, Year 2. The $1,050 previously written off as uncollectible is now reinstated as a receivable, and the allowance for doubtful accounts is reduced by an equal amount. This results in no change to net income.

On December 31, Year 1, the Loudoun Corporation Estimated That