The Allowance for Bad Debts Account Has a Credit Balance

question 38

Multiple Choice

The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad debts expense. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2019. Net credit sales for the year amounted to $270,000. What will be the balance of Allowance for Bad Debts on the December 31, 2019 balance sheet?

• A) $5,400
• B) $2,000
• C) $7,400
• D) $5,360

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Definitions:

Employee Stock Options

A type of compensation given to employees, offering the right to purchase company stock at a specific price within a set period.

Call Options

Financial contracts giving the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Preferred Stock

A class of ownership in a corporation with a fixed dividend that is paid before any dividends are paid to common stockholders, typically without voting rights.

Common Stock

Shares of ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends, subject to business performance.