From the following list of activity bases for an automobile dealership, select the base that would be most appropriate for each of these costs

Journalize the following transactions, using the direct write-off method of accounting for uncollectible receivables:

Feb. 12. Received $800 from Leo Jorgenson and wrote off the remainder owed of $2,400 as uncollectible.
May 3. Reinstated the account of Leo Jorgenson and received $2,400 cash in full payment.


Answer:












Feb. 12 Cash 800
Bad Debt Expense 2,400
Accounts Receivable—Leo Jorgenson 3,200
May 3 Accounts Receivable—Leo Jorgenson 2,400
Bad Debt Expense 2,400
3 Cash 2,400
Accounts Receivable—Leo Jorgenson 2,400



From the following list of activity bases for an automobile dealership, select the base that would be most appropriate for each of these costs: (1) preparation costs (cleaning, oil, and gasoline costs) for each car received, (2) salespersons’ commission of 5% of the sales price for each car sold, and (3) administrative costs for ordering cars.

a. Number of cars sold
b. Dollar amount of cars ordered
c. Number of cars ordered
d. Number of cars on hand
e. Number of cars received
f. Dollar amount of cars sold
g. Dollar amount of cars received
h. Dollar amount of cars on hand


Answer:
1. e
2. f
3. c

For 3. (c) is better than (b) because the administrative costs would be the same for expensive and inexpensive cars.