A Company Uses the Percent of Sales Method to Determine

question 153

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: Accounts receivable $375,000 debit
Allowance for uncollectible accounts 500 credit
Net Sales 800,000 credit
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) $5,500
• B) $1,275
• C) $1,775
• D) $4,800
• E) $4,500

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Definitions:

Statute of Frauds

A legal doctrine that requires certain types of contracts to be in writing and signed by all parties to be enforceable.

Statute of Frauds

A legal doctrine requiring certain contracts to be in writing to be legally enforceable.

Evidenced

Something that is made apparent or is provided as proof in support of an assertion, fact, or claim.

Collateral Contracts

Secondary contracts that supplement a primary contract, often providing for additional rights or obligations that enhance the original agreement.