Kinsler Company Uses the Percentage-Of-Receivables Method for Recording Bad Debt

question 111

Multiple Choice

Kinsler Company uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 6% of accounts receivable will be uncollectible. What adjusting entry will Kinsler Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?

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Definitions:

Average Cost

The total cost of goods available for sale divided by the number of items available for sale, used to determine the cost of goods sold and ending inventory.

Declining Prices

A situation where prices of goods, securities, or commodities decrease over time due to various factors like market oversupply, low demand, or economic downturns.

Net Income

The amount of profit left over, after all expenses and taxes have been subtracted from total revenue.

Performance Bonuses

Performance bonuses are additional compensation provided to employees as a reward for achieving or surpassing predefined performance targets.