Smart Art Is a New Establishment

question 45

Multiple Choice

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and decided to use a factor of 2% for their year-end adjustment of bad debts expense. At the end of the year, the balance of bad debts expense would be:

• A)$150.
• B)$800.
• C)$250.
• D)$1,450.

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Definitions:

Accounting Methods

Systems and rules used for measuring, tracking, and recording a company’s financial transactions, often influencing how income and expenses are reported.

Common Size Statements

Financial statements that present all line items as a percentage of a base figure, facilitating comparison across time periods or companies.

Total Assets

The total of a company's assets, encompassing both current and long-term assets.

Cross-sectional Analysis

A type of analysis that examines data collected at a single point in time across multiple subjects, variables, or segments.