A Company Uses the Percent of Sales Method to Determine

question 87

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

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Definitions:

Performance Management System

A strategic and integrated approach to increasing the effectiveness of organizations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors.

Corrective Action

Steps taken to identify, eliminate, and prevent the recurrence of errors or problems in processes, products, or systems.

Legally Defensible

Capable of being maintained or upheld in a court of law, especially referring to actions, policies, or practices compliant with legal standards.

Performance Management System

A systematic process by which an organization involves its employees in improving organizational effectiveness and achieving goals.