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:

Composite Units

A measurement or costing method that combines different elements or articles to determine a standard unit rate or cost.

Sales Mix

The proportion of different products or services that a company sells, reflecting the variety and quantities sold.

Fixed Costs

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

Contribution Margin

The amount by which sales revenue exceeds variable costs, helpful in determining the profitability of individual products or services.