Credit sales for Sparrow Inc. during the year were $505,000. Management of Sparrow estimates that uncollectible...
Credit sales for Sparrow Inc. during the year were $505,000. Management of Sparrow estimates that uncollectible accounts are 2% of credit sales. The balance in the Allowance for Doubtful Accounts account before the adjustment for bad debts is a debit of $860. Which of the following is true?
A) The ending balance in the Allowance for Doubtful Accounts account will be $10,100
B) The ending balance in the Allowance for Doubtful Accounts account will be $10,960
C) The ending balance in the Allowance for Doubtful Accounts account will be used to determine the amount of the adjusting entry
D) The amount of the adjusting entry will be $10,100.
E) None of the above
Homework Answers
D) The amount of the adjusting entry will be $10,100.
The ending balance in the Allowance for Doubtful Accounts account is used to determine the amount of the adjusting entry when the percentage of credit sales method is used.
Amount of the adjusting entry = $505,000 * 2% = $10,100
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