A Company Uses the Percent of Sales Method to Determine

question 90

Multiple Choice

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 0.6% 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?

• A)Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.
• B)Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
• C)Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.
• D)Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
• E)Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.

---

Definitions:

Forward Buy

A purchasing strategy where a buyer purchases larger quantities of goods in advance to take advantage of lower prices or to hedge against future price increases.

Profitability

The ability of a business to generate more revenue than the expenses incurred, resulting in a profit.

Manufacturing Capacity

The maximum amount of products a factory or production facility can produce within a given time period.

Inventory Costs

Expenses associated with holding and managing goods or materials until they are sold or used in production.