A Company Uses the Percent of Sales Method to Determine

question 38

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:

Sternberg

A psychologist known for his triarchic theory of intelligence, which categorizes human intelligence into analytical, creative, and practical dimensions.

Practical Intelligence

The ability to solve everyday problems through adaptive or creative reasoning and learning from experience.

Creative Intelligence

A facet of intelligence involving the ability to deal with new situations using past experiences and current skills in innovative and original ways.

Spreads

Refers to the difference between two measurements, such as bid and ask prices in trading, or to the expansion of an entity or idea across different areas.