A Company Uses the Percent of Sales Method to Determine

question 207

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 debit
Net Sales 800,000 credit
All sales are made on credit. Based on past experience, the company estimates 0.6% of net 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 $4,300; credit Allowance for Doubtful Accounts $4,300.
• B) Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
• C) Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.
• D) Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
• E) Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.

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Definitions:

Preassembled

Refers to components or items that are assembled at the manufacturing point before being shipped to the customer or end-use location.

Product

Any good or service that can be offered to a market to satisfy a want or need, including physical items, services, and digital goods.

Waiver Of Warranty Rights

An agreement to relinquish one's legal rights to hold a seller accountable for defects in goods or property.

Statute Of Limitations

is a law prescribing the time limit within which legal action must be commenced for alleged breaches of law or rights.