The Allowance for Bad Debts Account Has a Credit Balance

question 165

Multiple Choice

The Allowance for Bad Debts account has a credit balance of $2000 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 $260,000.What will be the balance of Allowance for Bad Debts on the December 31,2019 balance sheet?

• A) $5200
• B) $2000
• C) $7200
• D) $5160

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Definitions:

Equity Multiplier

A financial leverage ratio that measures the portion of a company's assets that are financed by shareholders' equity.

Debt Ratio

The debt ratio measures a company's financial leverage, calculated by dividing total liabilities by its total assets.

Rational Self-Interest

The principle that individuals tend to make decisions that maximize their own utility or benefit, underpinning much of economic theory.

Economic Decision Makers

Individuals or entities responsible for choosing what to produce, how to produce, and for whom to produce in an economy, including households, businesses, and governments.