A Company Uses the Percent of Sales Method to Determine

question 114

Multiple Choice

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: All sales are made on credit. Based on past experience, the company estimates 0.6% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

• A)Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.
• B)Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
• C)Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.
• D)Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
• E)Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.

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Definitions:

Correlations

Statistical measures that describe the extent to which two variables change together, but not necessarily indicating causation.

Objective Test

An assessment tool designed to measure knowledge, skills, or abilities without subjective judgment.

Criterion-related Validity

The extent to which a measure is related to an outcome, where the validity is determined by comparing the measure against a known criterion or benchmark.

Construct Validity

The extent to which a test or instrument accurately measures the theoretical construct it is intended to assess.