The Following Selected Amounts Are Reported on the Year-End Unadjusted

question 13

Multiple Choice

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense.
$\begin{array}{|l|r|r|}\hline\text { Accounts receivable } & \$ 435,000 & \text { Debit } \\\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \\\hline \text { Net Sales } & 2,100,000 & \text { Credit }\\\hline\end{array}$


All sales are made on credit.Based on past experience,the company estimates 1% of 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 $19,750; credit Allowance for Doubtful Accounts $19,750.
• B) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
• C) Debit Bad Debts Expense $22,250; credit Allowance for Doubtful Accounts $22,250.
• D) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
• E) Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.

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Definitions:

Subsidiaries

Companies that are controlled by another company, known as the parent company, through ownership of more than 50% of the subsidiary's voting stock.

Non-executive Director

A member of a company's board of directors who is not part of the executive team, providing oversight and valuable perspective without managing day-to-day operations.

Related Party

A person or entity that is related to the entity that is preparing its financial statements.

Controlling Investment

A significant ownership interest in a company, providing the ability to exercise control over its operations and policies.