A company accounts for possible bad debts using the allowance method. When an actual bad debt occurs what effect does it have on the accounting equation? O Decreases asscts and decreases stockholders' equity. D Increases assets and increases stockholders' equity. D Decreases assets and decreases liabilities. O No effect on the accounting equation.

A company accounts for possible bad debts using the allowance method. When an actual bad debt occurs what effect does it have on the accounting equation? O Decreases asscts and decreases stockholders' equity. D Increases assets and increases stockholders' equity. D Decreases assets and decreases liabilities. O No effect on the accounting equation.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Refers to the inability of the business to meet its obligations as they mature on account of insufficient resources. A. Default risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk 2. A type of risk that relates to changes in the prime interest rate which have significant effects on the cost of money but not directly on the liquidity of the business. A. Financial risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk 3. Refers to the changes in the conditions and those variables affecting the cost of capital, capital structure and also management decisions made to directly influence the market price of a stock. A. Financial risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk
Why does the Bad Debts Expense account usually not have the same adjusted balance as the Allowance for Doubtful Accounts?
Which of the following are ways companies could use accounts receivables for earnings management? Select all that apply. Overestimate uncollectibles to reduce earnings (cookie jar reserve) Underestimate uncollectibles to reduce earnings (cookie jar reserve) Underestimate uncollectibles to increase earnings Overestimate uncollectibles to increase earnings
Which of the following accounts are characterized as a "contra" account? (Select ALL that apply) O Equipment O Deferred Revenue OAccumulated Depreciation O Accounts Payable O Depreciation Expense O Sales Allowances O Sales return O Allowance for Uncollectible A/R O Bad Debt Expense O Accounts Receivable O Notes Payable O Cost of Goods Sold ASUS
how do companies account for bad debt? Why would they use an allowance account instead of directly crediting A/R? What are the various methods of accounting for bad debt? Describe the differences in how the expense is calculated.
Which of the statements below is false? If the net income of prior period is overstated because of the change in accounting policy, the effect is (A) deducted from the beginning retained earnings. Prior period errors are shown as adjustment of the ending balance of retained earnings. If the net income of (B) the prior period is overstated, the amount of the error uis deducted from retained earnings. Equity is also the net assets. In the conversion of preference chares into ordinary shares, if the total par or stated value of the ordinary D shares is more than the original issue of the preference shares, the difference is charged to retained earnings.
Desceibe income statement approach for estimating bad debts.
___________ is the possible loss of revenue resulting mainly from a decline in the revenue base. Group of answer choices Investment risk Debt-related risk Revenue risk Insurance risk
Recording bad debt expense under the allowance method will have what effect on the financial statements? Select one: a. Profit is unchanged and total assets decrease b. Profit decreases and total assets is unchanged c. Profit is unchanged and total assets is unchanged d. Profit increases and total assets decrease e. Profit decreases and total assets decrease
Why might some liabilities not be reported on the balance sheet? Why would a company look to have some liabilities not reported on its balance sheet?
Explain why writing off a bad debt against a company's Allowance for Doubtful Accounts does not diminish the estimated realizable value of its accounts receivable.
4.Below are various states of financial distress: a. b. What is the order of increasing gravity that analysts typically consider when assessing credit risk and bankruptcy risk according to a continuum of financial distress? c. d. Problem 3 1. defaulting on a principal payment on debt 2. restructuring debt 3. liquidating a firm 4. filing for bankruptcy 5. failing to make a required interest payment on time 5, 1, 2, 3, 4 5, 2, 1, 4, 3 1, 5, 2, 4, 3 1,5, 2, 3, 4 I