Allowance for Doubtful Accounts Has a Debit Balance of $2,500

question 74

Multiple Choice

Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment) , and bad debt expense is estimated at 4% of net credit sales. If net credit sales are $800,000, the amount of the adjusting entry to record the estimate of the uncollectible accounts is

• A) $29,500
• B) $34,500
• C) $32,000
• D) cannot be determined

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Definitions:

Goodwill

An intangible asset that arises when a business is acquired for more than its fair market value, reflecting factors like reputation, brand, and customer loyalty.

Net Working Capital

The difference between a company's current assets and its current liabilities, indicating the liquidity and operational efficiency of the business.

Current Assets

Short-term assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle, whichever is longer.

Current Liabilities

Obligations a company needs to pay off within one year or within its operating cycle, whichever is longer.