Nichols Company Uses the Percentage of Receivables Method for Recording

question 122

Multiple Choice

Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?

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Definitions:

Pyrimidines

A class of nitrogenous organic compounds with a single six-member ring, found in nucleic acids (DNA and RNA).

Capsaicin

The active component in chili peppers that gives them their characteristic heat, used in topical ointments for pain relief.

Pain Sensations

The uncomfortable feelings or perceptions associated with actual or potential tissue damage.

Muscle Strength

Describes the maximum amount of force a muscle or group of muscles can exert during a single effort.