Bay Company Began Using the Allowance Method in 2014

question 47

Multiple Choice

Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $25,000 of service on account. The company collected $21,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account.
The amount of uncollectible accounts expense to recognize on the 2014 income statement is:

• A) $80.
• B) $250.
• C) $480.
• D) $500.

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Definitions:

Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

Unlimited Liability

A legal obligation where business owners are personally responsible for all of the debts of the business.

Cooperatives

A type of organization owned and operated by a group of individuals for their mutual benefit.