(LO 5) A company uses the percent of sales method to determine its bad debts exp
ID: 2579689 • Letter: #
Question
(LO 5) A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:
All sales are made on credit. Based on past experience, the company estimates 0.4% of net credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
Multiple Choice
Debit Bad Debts Expense $3,784; credit Allowance for Doubtful Accounts $3,784.
Debit Bad Debts Expense $1,444; credit Allowance for Doubtful Accounts $1,444.
Debit Bad Debts Expense $2,664; credit Allowance for Doubtful Accounts $2,664.
Debit Bad Debts Expense $3,224; credit Allowance for Doubtful Accounts $3,224.
Debit Bad Debts Expense $2,004; credit Allowance for Doubtful Accounts $2,004.
Accounts receivable $ 361,000 debit Allowance for uncollectible accounts 560 debit Net Sales 806,000 creditExplanation / Answer
1) Answer (A) Debit Bad Debts Expense $3,784; credit Allowance for Doubtful Accounts $3,784.
Explanation :
Estimated Uncollectibles based on the past experience = $806,000 * 0.4%
= $3,224
Debit balance in allowance for doubtful accounts = $560
Total amount to be provided in the adjusting entry = $3,224 + $560
= $3,784
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