Cary Inc. reported net credit sales of $350,000 for the current year. The unadju

Question

Cary Inc. reported net credit sales of $350,000 for the current year. The unadjusted credit balance in its Allowance for Doubtful Accounts is $625. The company has experienced bad debt losses of 3% of credit sales in prior periods. Using the percentage of credit sales method, what amount should the company record as an estimate of Bad Debt Expense?

a) $2,500

b) $11,125

c) $10,500

d) $1,875

Cary Inc. reported net credit sales of $350,000 for the current year. The unadjusted credit balance in its Allowance for Doubtful Accounts is $625. The company has experienced bad debt losses of 3% of credit sales in prior periods. Using the percentage of credit sales method, what amount should the company record as an estimate of Bad Debt Expense?

Explanation / Answer

Bad Debts expense = credit sales x bad debts %

                                  = $350000 x 3%

                               = $10500.

The answer is , therefore, (c) $10500.

Bad debts has to be calculated on the credit sales and there-after the allowance for doubtful debts need to be calculated.

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