A Company Ages Its Accounts Receivables to Determine Its End

question 148

Multiple Choice

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $39,375 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $3,285. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

• A)\(\begin{array} { | l | r | r | } \hline \text { Bad Debt Expense } & 36,090 & \\ \hline \text { Allowance for Doubtful Accounts } & & 36,090 \\ \hline \end{array}\)
• B)\(\begin{array}{|c|c|c|} \hline \text { Bad Debt Expense } & 42,660 & \\ \hline \text { Allowance for Doubtful Accounts } & & 42,660 \\ \hline \end{array}\)
• C)\(\begin{array}{|c|r|r|} \hline \text { Bad Debt Expense } & 39,375 & \\ \hline \text { Allowance for Doubtful Accounts } & & 39,375 \\ \hline \end{array}\)
• D)\(\begin{array} { | l | r | r | } \hline \text { Accounts Receivable } & 39,375 & \\ \hline \text { Bad Debt Expense } & 3,285 & \\ \hline \text { Sales } & & 42,660 \\ \hline \end{array}\)

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Definitions:

Actual Production

Refers to the quantity of goods that have been produced within a given time frame, as opposed to planned or theoretical production levels.

Direct Labour Variance

The difference between the actual direct labor costs incurred and the standard costs for the actual production achieved.

Direct Labour Standards

Benchmarks for the amount of labor time that is expected to be necessary to produce a unit of product or to complete a process.

Total Cost

The complete cost of production, including both fixed and variable costs.