CPA Excel questions got wrong

Question 1

The following trial balance of JB Company at December 31, year five, has been adjusted except for income taxes. The income tax rate is 30%.

                                                       DR	CR Accounts receivable, net	   $725,000	 Accounts payable		                             250,000 Accumulated depreciation		              125,000 Cash	                                     185,000	 Contributed capital		                     650,000 Expenses	                         3,750,000	 Goodwill	                                     140,000	 Prepaid taxes	                            225,000	 Property, plant, and equipment 850,000	 Retained earnings, 1/1/Year five		      350,000 Revenues	                                          4,500,000  	                  
                                          5,875,000   5,875,000

During Year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five.

Included in accounts receivable is $400,000 due from a loyal customer. Special terms were granted to this customer to make payments of $100,000 semi-annually every March 1 and September 1.

In JB Company’s December 31, Year five Balance Sheet, what amount should be reported as total assets?

    A.    1,575,000
B. 	1,775,000
C. 	2,000,000
D. 	5,875,000

Answer 1

B. 1,775,000

Total assets are calculated as follows:

Cash 185,000
Accounts receivable, net 725,000
Property, plant, and equipment 850,000
Accumulated depreciation (125,000)
Goodwill 140,000

Total assets 1,775,000

Question 2

The following trial balance of JB Company at December 31, year five, has been adjusted except for income taxes. The income tax rate is 30%.

                                                       DR	CR Accounts receivable, net	   $725,000	 Accounts payable		                             250,000 Accumulated depreciation		              125,000 Cash	                                     185,000	 Contributed capital		                     650,000 Expenses	                         3,750,000	 Goodwill	                                     140,000	 Prepaid taxes	                            225,000	 Property, plant, and equipment 850,000	 Retained earnings, 1/1/Year five		      350,000 Revenues	                                          4,500,000  	                  
                                          5,875,000   5,875,000

During Year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five.

Included in accounts receivable is $400,000 due from a loyal customer. Special terms were granted to this customer to make payments of $100,000 semi-annually every March 1 and September 1.

In JB Company’s December 31, Year five Balance Sheet, what amount should be reported as current assets?

    A. 	710,000
B. 	910,000
C. 	935,000
D. 	1,135,000

Answer 2

A. 710,000

Current assets are calculated as follows:

Cash 185,000
Accounts receivable, net 725,000
Reclassification of o/s receivable (200,000)

Total current assets 710,000

• The 400,000 receivable should be divided between current assets and noncurrent assets (200,000 each), which reduces current assets by 200,000.

Question 3

A multi-step Income Statement is prepared:

A. 	By all corporations.
B. 	By a company whose main activity is sales.
C. 	Because it is required by FASB.
D. 	Because it is more meaningful presentation of    revenue and expenses.

Answer 3

D. Because it is more meaningful presentation of revenue and expenses.

• A multi-step Income Statement is not required but is prepared because it is a more meaningful presentation of revenue and expenses.
  In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations.

Question 4

The following costs were incurred by Griff Co., a manufacturer, during 20X4:

Accounting and legal fees $ 25,000
Freight-in 175,000
Freight-out 160,000
Officers’ salaries 150,000
Insurance 85,000
Sales representatives’ salaries 215,000

What amount of these costs should be reported as general and administrative expenses for 20X4?

A. 	$260,000
B. 	$550,000
C. 	$635,000
D. 	$810,000

Answer 4

A. $260,000

The only costs included in general and administrative costs are:

Accounting and legal $ 25,000
Officers’ salaries 150,000
Insurance 85,000
Total G&A cost $ 260,000

The remaining costs are classified (in order of appearance) as product cost, distribution cost, and sales/promotional costs.

Question 5

A company has the following items on its year-end trial balance:

Net sales	           $500,000
Common stock	      100,000
Insurance expense	75,000
Wages	                        50,000
Cost of goods sold	100,000
Cash	                         40,000
Accounts payable	         25,000
Interest payable	         20,000

What is the company’s Gross Profit?

A. 	$230,000
B. 	$275,000
C. 	$400,000
D. 	$500,000

Answer 5

C. $400,000

Gross profit is sales less cost of goods sold. In this case gross profit is $500,000 - 100,000 = $400,000.

Question 6

Which of the following should be included in general and administrative expenses?

                      Interest  	  Advertising  
	     A.         Yes 	      Yes 
	     B.         Yes 	      No 
	    C.           No 	     Yes 
	    D.           No 	     No

Answer 6

D. No No

*Neither expense is normally included in general and administrative expenses because interest and advertising are expenses that result from very specific activities and are frequently material in amount. They should be separately identified.

Question 7

A company’s activities for year two included the following:
Gross sales $3,600,000
Cost of goods sold 1,200,000
Selling and administrative expense 500,000
Adjustment for a prior-year understatement of amortization expense 59,000
Sales returns 34,000
Gain on sale of available-for-sale securities 8,000
Gain on disposal of a discontinued business segment 4,000
Unrealized gain on available-for-sale securities 2,000
The company has a 30% effective income tax rate. What is the company’s net income for year two?

A. 	$1,267,700
B. 	$1,273,300
C. 	$1,314,600
D. 	$1,316,000

Answer 7

C. $1,314,600

*All items are included in net income except the prior year adjustment to amortization expense and the unrealized gain on the AFS securities. The pre-tax income is $1,878,000 and after 30% taxes the net income is $1,314,600.

$2,000 unrealized gain on the AFS securities. The unrealized gain should be included in other comprehensive income.

Question 8

In a multi-step Income Statement:

     A. 	Total expenses are subtracted from total revenues.
B. 	Gross profit (margin) is shown as a separate item.
C. 	Cost of sales and operating expense are   subtracted from total revenues.
D. 	Other income is added to revenue from sales.

Answer 8

B. Gross profit (margin) is shown as a separate item.

In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations. Gross profit (margin) is shown as a separate item.

Question 9

The following items were among those reported on Lee Co.’s Income Statement for the year ended December 31, 20X5:

Legal and audit fees $170,000
Rent for office space 240,000
Interest on inventory floor plan 210,000
Loss on abandoned data processing equipment used in operations 35,000

The office space is used equally by Lee's sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in Lee's multiple-step Income Statement?
	A. 	$290,000
	B. 	$325,000
	C. 	$410,000
	D. 	$500,000

Answer 9

A. $290,000

General and administrative expenses include expenses that are not related to significant specifically identifiable activities. G & A costs benefit the entire firm rather than one specific function.
The $170,000 of legal and audit fees are included in G & A expenses and are 1/2 of the rent for the office space ($120,000 = .5 x $240,000). The portion of rent related to accounting is G & A. The other half of the rent is a selling expense, a significant separate activity. The interest and loss are also separately reported. Thus total G & A expense is $290,000 ($170,000 + $120,000).

Question 10

The accumulated other comprehensive income (AOCI) beginning balance for the current year was $6,000 dr. Net income for the period is $21,000. During the year the following two other comprehensive income items were recognized:

foreign currency translation loss, $2,000
and unrealized gain on securities available for sale,$9,000.

What amount is reported for comprehensive income (CI) for the year, and what is the ending AOCI balance?

                 CI  	                AOCI  
	A.   $7,000 	         $1,000 cr. 
	 B.   $28,000   	 $1,000 cr. 
	 C.   $21,000 	         $7,000 cr. 
	 D.   $28,000 	         $6,000 dr.

Answer 10

B. $28,000 $1,000 cr.

CI ($28,000) is the sum of income ($21,000) and other comprehensive income (-$2,000 + $9,000 = $7,000).

AOCI is the running OE account, which is increased or decreased by other comprehensive income for the period. Ending AOCI = $6,000 dr. - $7,000 other comprehensive income (positive) = $1,000 cr.

AOCI began the year with a new loss of $6,000 (debit balance), but the $7,000 positive other comprehensive income for the year turned the beginning dr. balance of AOCI into a net credit of $1,000.

Question 11

Which of the following should be disclosed in a summary of significant accounting policies?

I. Management’s intention to maintain or vary the dividend payout ratio.

II. Criteria for determining which investments are treated as cash equivalents.

III. Composition of the sales order backlog by segment.

    A. 	I only.
B. 	I and III.
C. 	II only.
D. 	II and III.

Answer 11

C. Only II. is an accounting policy. Accounting policies include the choice of accounting methods made by the firm, the principles and methods specific to an industry, and any unusual or innovative applications of GAAP.

I. and III. are data regarding specific accounts or statements of management intention. They are not descriptions of methods of measurement or recognition used by the firm disclosed for the purpose of assisting users in understanding the amounts reported in the financial statements.

Question 12

Which type of material related-party transactions require disclosure?

   A. 	Only those not reported in the body of the financial statements.
B. 	Only those that receive accounting recognition.
C. 	Those that contain possible illegal acts.
D. 	All those other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business.

Answer 12

D. All those other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business.

Material related party transactions must be disclosed unless they are ordinary business transactions, such as payment of employees and other routine transactions.

Question 13

Where in its financial statements should a company disclose information about its concentration of credit risks?

    A. 	No disclosure is required.
B. 	The notes to the financial statements.
C. 	Supplementary information to the financial statements.
D. 	Management's report to shareholders.

Answer 13

B. The notes to the financial statements.

GAAP requires disclosure of all significant concentrations of credit risk from receivables and other financial instruments in the notes. A concentration of credit risk occurs when receivables from different sources reflect common economic risks (for example, a group of receivables from several firms within the same industry).

Question 14

The summary of significant accounting policies should disclose the :

    A. 	Maturity dates of noncurrent debts.
B. 	Terms for convertible debt to be exchanged for common stock.
C. 	Concentration of credit risk of all financial instruments by geographical region.
D. 	Criteria for determining which investments are treated as cash equivalents.

Answer 14

D. Criteria for determining which investments are treated as cash equivalents.

The accounting policy footnote discloses both the methods of accounting used by the firm and other information useful for understanding the bases under which the financial statements were prepared. How the firm classifies investments as cash equivalents is one such basis; it is disclosed in the policy footnote. The other answer alternatives are disclosures about specific aspects of particular accounts.

Question 15

The summary of significant accounting policies should disclose the :

    A. 	Pro forma effect of retroactive application of an accounting change.
B. 	Basis of profit recognition on long-term construction contracts.
C. 	Adequacy of pension plan assets in relation to vested benefits.
D. 	Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years.

Answer 15

B. Basis of profit recognition on long-term construction contracts.

The summary of significant accounting policies conveys information regarding the important accounting methods and policies chosen by the firm, when a choice is available.
Knowledge of the methods is critical to an understanding of the amounts disclosed in the financial statements. The method of accounting for long-term contracts may be the percentage of completion or completed contract method. Disclosure of this method assists the user in understanding the meaning of reported revenue and gross profit.

The other answer alternatives give data on specific accounts or the result of applying specific accounting principles. They do not indicate what choices the firm has made for accounting and reporting.

Question 16

Which of the following facts concerning fixed assets should be included in the summary of significant accounting policies?

   Depreciation method  	  Composition  
          A              No 	           Yes 
          B              Yes 	            Yes 
          C               Yes 	             No 
          D               No 	            No

Answer 16

Depreciation method Composition
C Yes No

The summary of significant accounting policies requires that the methods of depreciation used by a firm be disclosed.
The composition of plant assets must also be disclosed, but not in the summary of significant accounting policies. The composition information typically is disclosed in another footnote.

Question 17

The following are held by Smite Co.:
Cash in checking account $20,000
Cash in bond sinking fund account 30,000
Post-dated check from customer dated one month from balance sheet date 250
Petty cash 200
Commercial paper (matures in two months) 7,000
Certificate of deposit (matures in six months) 5,000

What amount should be reported as cash and cash equivalents on Smite’s balance sheet?

    A. 	$57,200
B. 	$32,200
C. 	$27,450
D. 	$27,200

Answer 17

D. $27,200

The cash balance is $20,200: the sum of the checking account balance and the petty cash. Because it has a maturity of less than three months, the only cash equivalent is the $7,000 of commercial paper. The final sum of these two accounts is $27,200.

Question 18

The following information pertains to Grey Co. on December 31, 2003:

Checkbook balance $12,000
Bank statement balance 16,000
Check drawn on Grey’s account, payable to a vendor, dated and recorded 12/31/03 but not mailed until 1/10/04
1,800

On Grey’s December 31, 2003 balance sheet, what amount should be reported as cash?

A. 	$12,000
B. 	$13,800
C. 	$14,200
D. 	$16,000

Answer 18

B. $13,800

The correct cash balance is the balance per the checkbook ($12,000) plus the $1,800 check written to the vendor, for a total of $13,800.

This check reduced the balance in the checkbook but was not mailed. Thus, the amount remains in Grey’s cash balance at the end of the year. The bank statement balance is not the correct balance because information about transactions affecting cash near the end of the month, recorded by Grey, did not reach the bank by the cutoff date.

Question 19

On October 31, 2005, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15, 2005, payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance.
How should these accounts be reported in Dingo’s October 31, 2005, classified balance sheet?

A. 	The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.
B. 	The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.
C. 	The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.
D. 	The segregated and regular accounts should be reported as current assets net of the overdraft.

Answer 19

A. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

The accounts are with different banks. Thus, the accounts cannot be offset against one another.
The overdraft is a liability because the bank honored a check or withdrawal causing the account to be negative. The firm owes the bank this amount.

The regular corporate account is part of the cash account, a current asset. The segregated account is a long-term investment. The cash in this asset is set aside for a specific purpose. There is no intent to use the cash for ordinary operating purposes.

Question 20

All reconciling items at March 31, 2005 cleared the bank in April. Outstanding checks at April 30, 2005 totaled $7,000. There were no deposits in transit at April 30, 2005. What is the cash balance per books at April 30, 2005?

A. 	$48,200
B. 	$52,900
C. 	$55,200
D. 	$45,900

Answer 20

A. $48,200

The correct answer is $48,200.
The deposits per the bank records in April include a deposit made in March (the deposit in transit for that month). Therefore, the bank records must be adjusted for differences between the bank statement and the book records:

Balance per books, 3/31 $44,200
Deposits per bank, April $58,400
Less deposit in transit, 3/31 (10,300)
Equals deposits made by firm in April 48,100
Checks clearing bank in April $49,700
Less outstanding checks, 3/31 (12,600)
Plus outstanding checks, 4/30 7,000
Equals checks written by firm in April (44,100)
Balance per books, 4/30 $48,200

Question 21

Hilltop Co.’s monthly bank statement shows a balance of $54,200. Reconciliation of the statement with company books reveals the following information:

                 Bank service charge	$   10
                Insufficient funds check	  650
                  Checks outstanding	1,500
                      Deposits in transit	  350 Check deposited by Hilltop and cleared by the bank for            $125, but improperly recorded by Hilltop as $152	

What is the net cash balance after the reconciliation?

A. 	$52,363.
B. 	$53,023.
C. 	$53,050.
D. 	$53,077.

Answer 21

C. $53,050.

The reconciling items that need to be adjusted to the bank balance are: checks outstanding (-1,500) and deposit in transit (+350). The net cash after the reconciliation is: Bank balance $54,200 - 1,500 + 350 = $53,050. The bank service charge and insufficient funds are already reflected in the bank balance. The error is on Hilltop’s books, not on the bank statement and therefore does not need to be included in the reconciliation.

Question 22

On June 30, Almond Co.’s cash balance was $10,012 before adjustments, while its ending bank statement balance was $10,772. Check number 101 was issued June 2 in the amount of $95, but was erroneously recorded in Almond’s general ledger balance as $59. The check was correctly listed in the bank statement at $95.
The bank statement also included a credit memo for interest earned in the amount of $35, and a debit memo for monthly service charges in the amount of $50.

What was Almond’s adjusted cash balance on June 30?

A. 	$9,598
B. 	$9,961
C. 	$10,048
D. 	$10,462

Answer 22

B. $9,961

The error in recording the check ($95 - $59 = $36) overstated the cash balance and must be deducted from the book balance of $10,012.

The adjusted cash balance is computed as $10,012 - corrected #101 amount ($95 - $59) + $35 interest - $50 service charge = $9.96. Check #101 was recorded for $59 but should have been recorded for $95.

Question 23

A bank reconciliation with the headings “Balance per Books” and “Balance per Bank” lists three adjustments under the former and four adjustments under the latter. The company makes separate adjusting entries for each item in the reconciliation that requires an adjustment. How many adjusting entries are recorded?

    A. 	3
    B. 	4
    C. 	7
    D. 	0

Answer 23

A. 3

Only amounts adjusting the balance per books require an adjusting entry because only those amounts explain why the firm’s recorded cash balance is not the same as the true cash balance. Common adjustments of this type include bank service charges, notes collected, and interest. The firm cannot alter the bank balance.

Question 24

On June 1, 2005, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%.
Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation.
On June 12, 2005, Pitt received from Burr a remittance in full payment amounting to

A. 	$2,744
B. 	$2,940
C. 	$2,944
D. 	$3,140

Answer 24

C. $2,944

$5,000(1 - .30)(1 - .20)(.98) + $200 = $2,944.
The chain trade discounts are applied to each successive net amount as shown in the calculation, and the cash discount of 2% is then applied to the final invoice amount.

The cash discount applies because the payment was made within 15 days of purchase. The goods were shipped FOB shipping point. Therefore, title transferred to Burr at the shipping point, meaning Burr bears the shipping charges. Because Pitt prepaid them as an accommodation, Burr must reimburse Pitt for the $200, the last term in the calculation leading to $2,944.

Question 25

Adam Co. reported sales revenue of $2,300,000 in its income statement for the year ended December 31, 2005. Additional information was as follows:

                                                          12/31/04	12/31/05 Accounts receivable	                      $500,000	$650,000 Allowance for uncollectible accounts	(30,000) 	(55,000)

Uncollectible accounts totaling $10,000 were written off during 2005. Under the cash basis of accounting, Adam would have reported 2005 sales of

A. 	$2,140,000
B. 	$2,150,000
C. 	$2,175,000
D. 	$2,450,000

Answer 25

A. $2,140,000

Under the cash basis of accounting, sales equals cash collected from customers. An equation or T account may be used to determine this amount:

AR, beginning + Sales - Write-offs - customer collections = AR, ending

$500,000 + $2,300,000 - $10,000 ? = 650,000

Solving for the unknown (?) amount, customer collections equals $2,140,000.
This is the amount collected from customers, and is the amount that would be reported as sales under the cash basis method of accounting.

Question 26

Bee Co. uses the direct write-off method to account for uncollectible accounts receivable.
During an accounting period, Bee’s cash collections from customers equal sales adjusted for the addition or deduction of the following amounts:

Accounts written off - Increase in accounts receivable bal.  
A.	       Deduction 	  Deduction 
B.	          Addition 	 Deduction 
C.	       Deduction 	 Addition 
D.	          Addition 	 Addition

Answer 26

Accounts written off- Increase in accounts receivable bal.
A. Deduction Deduction

Under the direct write-off method, write-offs are credited directly to accounts receivable (AR). No allowance account is used. Under the terms of the question, accounts receivable increased during the year.

Increase in AR = sales - cash collections - write-offs
cash collections = sales - increase in AR - write-offs.

Question 27

Gibbs Co. uses the allowance method for recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off of a specific uncollectible account

A. Affects neither net income nor working capital.
B. Affects neither net income nor accounts receivable.
C. Decreases both net income and accounts receivable.
D. Decreases both net income and working capita

Answer 27

A. Affects neither net income nor working capital.

The entry is:

Allowance for uncollectible accounts xxxx
Accounts receivable xxxx

The allowance is contra to accounts receivable and thus the entry does not affect net accounts receivable. The entry does not affect current assets, working capital, or income. However, the entry does reduce gross accounts receivable. Thus, the answer “affects neither net income nor working capital” is the only possible correct answer. The answer “affects neither net income nor accounts receivable” is incorrect if “accounts receivable” is interpreted as gross accounts receivable.

Question 28

When the allowance method of recognizing uncollectible accounts is used, how would the collection of an account previously written off affect accounts receivable and the allowance for uncollectible accounts?

 Accounts receivable  	 Allowance for uncollectible accounts  
A	 Increase 	 Decrease 
B	 Increase 	 No effect 
C	 No effect 	 Decrease 
D	 No effect 	 Increase

Answer 28

Accounts receivable Allowance for uncollectible accounts
D. No effect Increase

The collection reverses the reduction in the allowance account when the specific account was written off. There is no net change in gross accounts receivable because the account was collected. The two journal entries often given for this transaction are: (1) dr. Accounts receivable, cr. Allowance; (2) dr. Cash; cr. Accounts receivable. The first entry reinstates the allowance. The offsetting debits and credits for accounts receivable in both two entries provide an internal record of the transaction.

Question 29

Marr Co. had the following sales and accounts receivable balances prior to any adjustment at year end:

Credit sales $10,000,000
Accounts receivable 3,000,000
Allowance for uncollectible accounts 50,000

Marr uses 3% of accounts receivable to determine its allowance of uncollectible accounts at year-end. By what amount should Marr adjust its allowance for uncollectible accounts at year-end?

    A. 	$0
B. 	$40,000
C. 	$90,000
D. 	$140,000

Answer 29

B. $40,000

When uncollectible accounts are based on receivables, the adjustment is the amount needed to bring the allowance up to the required amount based on those receivables. With $3,000,000 in receivables, the required ending allowance balance is $90,000 (.03 x $3,000,000). There is $50,000 in the allowance account before adjustment. Therefore, $40,000 must be added. That is the amount debited to bad debt expense, and credited to the allowance account.

Question 30

Ward Co. estimates its uncollectible accounts expense to be 2% of credit sales. Ward’s credit sales for 2004 were $1,000,000. During 2004, Ward wrote off $18,000 of uncollectible accounts. Ward’s allowance for uncollectible accounts had a $15,000 balance on January 1, 2004. In its December 31, 2004 income statement, what amount should Ward report as uncollectible accounts expense?

A. 	$23,000
B. 	$20,000
C. 	$18,000
D. 	$17,000

Answer 30

B. $20,000

The credit sales method does not adjust the allowance balance to a required ending amount, but rather simply places the appropriate percent of sales into uncollectible accounts expense and the allowance account. 2% x $1,000,000 = $20,000.

Question 31

On January 1, 2006, Jamin Co. had a credit balance of $260,000 in its allowance for uncollectible accounts.
Based on past experience, 2% of Jamin’s credit sales have been uncollectible. During 2006, Jamin wrote off $325,000 of uncollectible accounts. Credit sales for 2006 were $9,000,000.

In its December 31, 2006 balance sheet, what amount should Jamin report as allowance for uncollectible accounts?

A. 	$115,000
B. 	$180,000
C. 	$245,000
D. 	$440,000

Answer 31

A. $115,000

The ending allowance balance equals:
Beginning balance - write-offs + 2% of credit sales =
$260,000 - $325,000 + .02($9,000,000) = $115,000

Write-offs reduce the allowance balance, and the adjusting entry at the end of the year recognizes 2% of credit sales as bad debt expense by increasing the allowance balance.

Question 32

Hall Co.'s allowance for uncollectible accounts had a credit balance of $24,000 on December 31, 2003. During 2004, Hall wrote off uncollectible accounts of $96,000. The aging of accounts receivable indicated that a $100,000 allowance for doubtful accounts was required on December 31, 2004. What amount of uncollectible accounts expense should Hall report for 2004?
	A. 	$172,000
	B. 	$120,000
	C. 	$100,000
	D. 	$96,000

Answer 32

A. $172,000

Beginning allowance balance $24,000
Less write-off (96,000)
Equals pre-adjustment allowance balance(72,000)
(debit)

The allowance balance normally is a credit. For the ending balance in the account after adjustment to be $100,000 credit, the account must be increased $172,000 by recognizing uncollectible accounts expense.

Under the aging method, uncollectible accounts expense equals the amount required to increase the allowance balance to the indicated total based on the aging of receivables.