Use the following data for the next 4 questions.

At the end of January, the unadjusted trial balance of Vernon, Inc., included the following accounts:

Debit Credit

Sales (75% represent credit sales) . $600,000

Accounts Receivable . $200,000

Allowance for Doubtful Accounts 2,000

1.Refer to the above data. Vernon estimates bad debts expense to be 2% of credit sales. What is the amount of Bad Debts expense recognized in Vernons income statement for January?

2.Refer to the above data. Vernon estimates bad debts expense to be 2% of credit sales. After the adjusting entry is made, the net realizable value of Vernons accounts receivable in the January 31 balance sheet is:

3.Refer to the above data. Vernon ages the accounts receivable and determines the estimated uncollectible portion to be 4% of gross accounts receivable. What is the amount of Bad Debts expense recognized in Vernons income statement for January?

4.Refer to the above data. Vernon ages the accounts receivable and determines the estimated uncollectible portion to be 4% of gross accounts receivable. After the adjusting entry is made, the net realizable value of Vernons accounts receivable in the January 31 balance sheet is:

5.A company which uses the direct write-off method recognizes bad debts expense:

a.As indicated by aging the accounts receivable at the end of the period

b.As a percentage of net sales during the period

c.As a percentage of net credit sales during the period

d.As specific accounts receivable are determined to be worthless

e.None of the above

6.A conceptual shortcoming in the direct write-off method of accounting for bad debts is that this method violates the:

a.Cost principle

b.Going-concern assumption

c.Matching principle

d.Realization principle

e.None of the above

The account Allowance for Bad Debts is an example of what type of account?

An owners equity account on the balance sheet.

An expense account included in the other expenses section of the income statement.

A contra-asset account on the balance sheet.

A contra-liability account on the balance sheet.

e.

8.At the start of the current year, Belmonde Company had a credit balance in the Allowance for Doubtful Accounts of $10,000. During the year, a provision of 2% of sales was made for uncollectible accounts. Sales for the year were $1,000,000 and $8,000 of accounts receivable were written off as worthless. No recoveries of accounts previously written off were made during the year. The year-end financial statements should show:

a.Bad Debts expense of $8,000

b.Bad Debts expense of $30,000

c.Allowance for Doubtful Accounts with a balance of $22,000

d.Allowance for Doubtful Accounts with a balance of $38,000

e.None of the above