Multiple Choice
Which of the following is correct when bad debt expense is recorded at year-end under the allowance method?
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7. Receivables and Investments
Net Accounts Receivable: Allowance for Doubtful Accounts
Multiple Choice
If Kelly's credit card statement shows a total balance of \$1,200, a minimum payment due of \$40, and a payment due date of June 15, what is the minimum amount Kelly must pay by the due date to avoid paying any interest?
A
\$40 (the minimum payment due)
B
\$0 (no payment is necessary)
C
\$1,200 (the full statement balance)
D
\$600 (half of the statement balance)
Verified step by step guidance1
Understand the problem: Kelly's credit card statement shows a total balance of \$1,200, a minimum payment due of \$40, and a payment due date of June 15. The goal is to determine the minimum amount Kelly must pay by the due date to avoid paying any interest.
Review the concept of credit card interest: Interest is typically charged on the remaining balance after the payment due date unless the full statement balance is paid. Paying only the minimum payment (\$40) or any partial amount less than the full balance (\$1,200) will result in interest charges on the remaining balance.
Identify the key requirement: To avoid paying any interest, Kelly must pay the full statement balance of \$1,200 by the payment due date (June 15). This is because paying the full balance ensures no remaining balance is carried forward to the next billing cycle.
Clarify the options provided: The minimum payment (\$40) is the least amount Kelly can pay to avoid late fees, but it will not prevent interest charges. Paying \$0 will result in late fees and interest. Paying \$600 (half the balance) will reduce the balance but still incur interest on the remaining \$600. Only paying \$1,200 (the full balance) avoids interest entirely.
Conclude the solution: Kelly must pay the full statement balance of \$1,200 by June 15 to avoid paying any interest. This aligns with the principle of avoiding interest by clearing the entire balance within the grace period.
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