Question

16. The Allowance for Doubtful Accounts . . .
a. has a normal debit balance
b. has a normal credit balance
c. appears only on the post-closing trial balance
d. any of the above

Use the following information to answer questions 22–24.
On July 1, 20X0, CriCo takes out a 10%, $10,000 note payable that is
due on July 1, 20X1. No interest is accrued at year-end 20X0.
22. If the error is not discovered until July 1, 20X1 . . .
a. it will require a prior period adjustment
b. it will require a current period adjustment
c. it will require both a and b
d. it will require no correction

24. To correct this error in 20X0, you need to record just the adjusting entry
that was not made because . . .
a. an expense account is involved
b. no error was made recording the note payable on July 1, 20X0
c. an accrual is involved rather than a deferral
d. the books have not been closed

Answer 1

16. Option (b) is correct

Allowance for doubtful accounts has a normal credit balance.

22. Option (c) is correct

It will require both prior period and current period adjustment. The reason is that the interest for the note payable belongs to both periods i.e. from July 1 , 20 X0 to December 31, 20 X0 and from January 1, 20X1 to Jul 1, 20X1.

24. Option (c) is correct

To correct this error in 20X0, you need to record just the adjusting entry that was not made because an accrual is involved rather than a deferral.