5. A company uses the percent of sales method to determine its bad debts expense

Question

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: Accounts receivable Allowance for uncollectible accounts Net Sales $375,000 debit 500 debit 800,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared? A) $1,275 B) $1,775 C) $4,500 D) $4,800

Explanation / Answer

Option D is correct-$4800

Credit Sale=800,000

% of Bad Debt= 0.6%

Bad Debt=800,000*0.6/100

Bad Debt=4800

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