A Company Uses the Percent of Sales Method to Determine

question 134

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: $\begin{array}{ll}\text { Accounts receivable } & \$ 375,000 \text { debit } \\\text { Allowance for unco llectible accounts } & 500 \text { credit } \\\text { Net Sales } & 800,000 \text { credit }\end{array}$ 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 $4,300; credit Allowance for Doubtful Accounts $4,300.
• B)Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
• C)Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.
• D)Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
• E)Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.

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