Modern Designs Is a New Business

question 30

Multiple Choice

Modern Designs is a new business. During its first year of operations, credit sales were $45,000 and collections of credit sales were $34,000. One account, $700, was written off. Management uses the percent-of-sales method to account for bad debts expense and estimates 3% of credit sales to be uncollectible. Bad debts expense for the first year of operations is ________.

• A) $650
• B) $1,350
• C) $700
• D) $2,370

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Definitions:

Total Cost

The total amount of money spent on creating goods or services, encompassing both constant and fluctuating expenses.

Implicit Cost

Represents the opportunity costs of using resources owned by the firm for its own production processes, without direct payment.

Interest Income

The income earned from lending funds or investing in interest-bearing financial instruments, such as saving accounts, bonds, or loans.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding costs related to production.