Indicate whether each of the following statements is true or false assuming use of the allowance method.________ a) The Allowance for Doubtful Accounts is a contra asset account.________ b) The net realizable value of receivables is the difference between the ending balance of accounts receivable and the ending balance in the allowance for doubtful accounts.________ c) The recognition of uncollectible accounts expense at the end of an accounting period does not affect the net realizable value of accounts receivable.________ d) The write-off of an uncollectible account reduces the net realizable value of accounts receivable.________ e) The write-off of an uncollectible account does not affect the amount of stockholders' equity.
What will be an ideal response?
a) T b) T c) F d) F e) T
a) This is true. Allowance for doubtful accounts is a contra asset account that decreases assets.
b) This is true. The net realizable value of receivables is the difference between the ending balance of accounts receivable and the ending balance in the allowance for doubtful accounts.
c) This is false. Recognition of uncollectible accounts expense increases allowance for doubtful accounts.
d) This is false. The write-off decreases both accounts receivable and allowance for doubtful accounts, so it does not affect the net realizable value of receivables.
e) This is true. There is no expense involved in writing off an uncollectible receivable when the allowance method is used.
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