Smart Art Is a New Establishment

question 4

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 its year-end adjustment of bad debts expense.
-What is the ending balance in Accounts Receivable at the end of the year?

• A)$4,000
• B)$3,600
• C)$3,350
• D)$3,200

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to covering fixed costs and generating profit.

Fixed Costs

Costs that do not vary with production or sales levels, including rent, insurance, and salaries, which remain constant regardless of business activity levels.

Operating Income

The profit realized from a business's operations, calculated by subtracting operating expenses from gross profit.

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance premiums.