Modern Designs Is a New Business

question 56

Multiple Choice

Modern Designs is a new business.During its first year of operations,credit sales were $43,000 and collections of credit sales were $34,000.One account,$625,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) $665
• B) $1290
• C) $625
• D) $2310

---

Definitions:

Trade Receivables

Notes and accounts receivable that result from sales transactions.

Notes Receivables

Written promises for amounts to be received, typically including interest, indicating that another party owes the business money.

Contra Asset Account

An account offset against an asset account on the balance sheet.

Allowance for Doubtful Accounts

An accounting provision that represents a company's estimate of invoices that will not be paid by customers.