Question

Our company uses the percentage of sales method to estimate bad debt expense for the year. Our allowance for bad debts account has a credit balance of $1,000 prior to the adjusting entry for bad debt expense. We have estimated that 2% of net credit sales will be uncollectible for the current year. Net credit sales for the year totaled $200,000. What will be the balance in allowance for bad debts after the adjusting entry is recorded

a. 3000

b. 4000

c. 5000

d. 6000

Our company uses the percentage of receivables method to estimate bad debt expense for the year. We had the following account balances on our unadjusted trial balance at the end of the year (December 31): accounts receivable, debit balance of $150,000; allowance for bad debts, credit balance of $1,000. We estimate that 3.5% of accounts receivable at the end of the year are uncollectible. What amount will be debited to bad debt expense when we record the adjusting entry

a. 4000

b. 4250

c. 5250

d. 6250

Answer 1

	1)	Allowance for bad debts
				opening	1,000
				Adjustment	4000
				end bal	5,000
		answer)	option C
			$5,000
	2)	Bad debts expense
		Estimated bad debts			5250
		less:Credit balance in allowance			-1000
		Bad debts expense			4250
		Answer)
		option B
		$4,250