A Company Uses the Percent of Sales Method to Determine

question 203

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:
$$\begin{array} { l l } \text { Accounts receivable } & \$ 375,000 \text { debit } \\\text { Allowance for uncollectible accounts } & 500 \text { credit } \\\text { Net Sales } & 800,000 \text { credit }\end{array}$$
All sales are made on credit.Based on past experience,the company estimates that 0.6% of net credit sales are uncollectible.What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

• A) $1,275
• B) $1,775
• C) $4,500
• D) $4,800
• E) $5,500

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Definitions:

Unanticipated Inflation

Inflation that occurs when there is a difference between expected and actual inflation, often causing economic distortions.

Savers

Individuals who allocate part of their income to a savings account or other forms of investment for future use, rather than spending it immediately.

Borrowers

Individuals or entities that take out loans from financial institutions or individuals, typically agreeing to pay back the original amount plus interest.

Structural Unemployment

When people are out of work for a couple of years or longer.