The Following Information Pertains to Lightning Inc A)$400
B)$470

question 104

Multiple Choice

The following information pertains to Lightning Inc. ,at the end of December: Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due,10% of receivables less than 30 days past due,and 40% of receivables greater than 30 days past due.The accounts receivable balance of $7,000 consists of $3,500 not yet due,$2,000 less than 30 days past due,and $1,500 greater than 30 days past due.What is the appropriate amount of Bad Debt Expense?
$$\begin{array} { | l | r | l | } \hline \text { Credit Sales } & \$ 60,000 & \\\hline \text { Accounts Payable } & 10,000 & \\\hline \text { Accounts Receivable } & 7,000 & \\\hline \begin{array} { l } \text { Allowance for Uncollectible } \\\text { Accounts }\end{array} & \$ 400 & \text { credit } \\\hline \text { Cash Sales } & 20,000 & \\\hline\end{array}$$

• A)$400.
• B)$470.
• C)$870.

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Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead to individual units of production, based on estimated costs rather than actual costs.

Volume Variance

A measurement of the difference between the actual production volume and the expected (or budgeted) production volume, affecting the costs incurred.

Variable Component

A cost associated with the production of goods or services that varies with the level of output or sales.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to apply manufacturing overhead costs to products by estimating fixed and variable manufacturing overhead costs for the coming period.