The Allowance for doubtful debts currently has a debit balance of $200. The company's management estimates that 2.5% of net credit sales will be uncollectable. Net credit sales are $115 000. What will be the amount of Bad debts expense reported on the income statement?
A)$2 875
B)$3 275
C)$3 075
D)$2 675

Question

Quizplus · Accepted Answer

The correct answer is A.The amount of Bad debts expense reported on the income statement will be $2,875.The Allowance for doubtful debts currently has a debit balance of $200. This means that the company has already written off $200 of bad debts.The company's management estimates that 2.5% of net credit sales will be uncollectable. This means that the company expects to write off $2,875 of bad debts in the future.The amount of Bad debts expense reported on the income statement will be the amount of the estimated uncollectable accounts, which is $2,875.

The Allowance for Doubtful Debts Currently Has a Debit Balance