On January 1, Year 2, Kincaid Company\'s Accounts Receivable and the Allowance f
ID: 2557580 • Letter: O
Question
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $70,400 and $2,800, respectively. During the year Kincaid reported $187,000 of credit sales. Kincaid wrote off $1,700 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $222,300. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. Kincaid's entry required to recognize the uncollectible accounts expense for Year 2 will:
Multiple Choice
decrease total assets and increase retained earnings.
increase total assets and decrease net income.
increase total assets and retained earnings.
decrease total assets and net income.
Explanation / Answer
Answer is Decrease the total assets and net income.
Explanation:
The Entry for recognizing the uncollectible accounts expense is as follows:
Bad debts expense Dr. $1870
Allowance for doubtful debts (187000*1%) $1870
The Bad debts expense is having an effect of reducing the income of the year. The balance of Allowance for doubtful debts will increase and such increased balance will be reduced from Accounts receivable. This is will result in an overall drop in Total Assets.