Reference no: EM132662623

Problem 1: Cash equivalents are investments with a maturity of three months or less that are readily convertible to cash and whose value is unlikely to change.

• True
• False

Problem 2: The journal entry to record a company's estimate of future bad debts (i.e., Dr. Bad Debt Expense and Cr. Allowance for Doubtful Accounts) has the following effect on the financial statements:

Option 1: Total Assets will decrease.

Option 2: Total Liabilities will decrease.

Option 3: Total Stockholders' Equity will increase.

Option 4: Total Assets will increase.

Problem 3: How does a company know to record the journal entries for a bad debt recovery?

Option 1: The company records a recovery when they receive a cash payment from a customer related to an account that had been previously written off.

Option 2: The company records a recovery as an adjusting entry at the end of the accounting period.

Option 3: The company records a recovery because they have a policy that says recoveries are recorded after a certain number of days outstanding.

Option 4: The company records a recovery once they identify a specific account that is uncollectible.