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

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Definitions:

Fixed Asset

Long-term tangible assets, such as machinery, buildings, and land, used in the operation of a business that are not expected to be consumed or converted into cash within a year.

Net Income

The net income of a company, which is the remaining amount of total revenues after deducting all expenses, taxes, and costs.

Net Cash Flows

The difference between a company's cash inflows and cash outflows during a specific period, reflecting its ability to generate cash.

Cash Payback Period

The time it takes for a business to recuperate its investment in a project, measured by the flow of cash into the organization.