Linus Company uses the percent-of-sales method to estimate uncollectibles. Net credit sales for the current year...
Linus Company uses the percent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $ 110,000, and management estimates 5% will be uncollectible. The amount of expense to report on the income statement was $ 5,500. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $ 1,000. The balance of Allowance for Uncollectible Accounts, after adjustment, will be:
A. $ 6,100.
B. $ 5,500.
C. $ 500.
D. $6,500.
Homework Answers
Correct answer-----------(D) $6,500
Working
| Balance in allowance for Uncollectible Accounts before adjustment for bad debts | $ 1,000.00 | Cr |
| Add: Bad debts recorded | $ 5,500.00 | Cr |
| Ending balance in Allowance for Uncollectible Accounts | $ 6,500.00 | Cr |
In percent of sales method the new bad debts expense is added to unadjusted balance of Allowance for Uncollectible Accounts.
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