The Allowance for Bad Debts Account Has a Credit Balance

question 70

Multiple Choice

The Allowance for Bad Debts account has a credit balance of $2,000. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015. Net credit sales for the year amounted to $250,000. What will be the amount of Bad Debts Expense reported on the income statement for 2015?

• A)$5,000
• B)$3,075
• C)$2,875
• D)$2,675

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Definitions:

Short Run

A period in economics during which at least one input is fixed, limiting the immediate capacity to adjust production levels.

Monopolistic Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for significant differentiation and some degree of market power.

Long Run

A period of time in which all factors of production and costs are variable, allowing companies to adjust all aspects of their operations.

Economic Profits

Economic profits are the financial gains that occur when the revenue from business activities exceeds the costs, expenses, and the opportunity costs of all resources employed.