Question

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable Allowance for Doubtful Accounts Net Sales $ 435,000 Debit 1,250 Debit 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 1% 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? Multiple Choice Debit Bad Debts Expense $19,750; credit Allowance for Doubtful Accounts $19.750. Debit Bed Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.

Answer 1

Answer

• Bad Debt Expense is recorded by
  Debiting Bad Debt Expense, and
  Crediting Allowance account
• Bad Debt Expense = $ 2100000 Credit sale x 1%
  = $ 21,000
• Correct Answer = Option #5
  Debit Bad Debt Expense $ 21000
  Credit Allowance for Doubtful Accounts $ 21000