A Company Uses the Percent of Receivables Method to Determine

question 8

Multiple Choice

A company uses the percent of receivables 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 3.5% 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 $13,975; credit Allowance for Doubtful Accounts $13,975.
• B) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
• C) Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.
• D) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
• E) Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.

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Definitions:

Total Cost

Represents the complete expenditure made by a company in manufacturing a product or offering a service, covering variable and fixed expenses.

Economic Costs

The total cost of choosing one action over another, including both explicit costs and opportunity costs.

Drone

An unmanned aerial vehicle (UAV) that can be remotely controlled or fly autonomously through software-controlled flight plans in embedded systems.

Average Variable Costs

The sum of all variable expenses divided by the total number of units produced.