The Allowance for doubtful debts account has a credit balance of $4000.The company's management estimates that 3% of net credit sales will be uncollectable for the year 2016.Net credit sales for the year amounted to $260,000.What will be the amount of Bad debts expense reported on the income statement for 2016?
A)$3900
B)$11,800
C)$7800
D)$3800

Question

Quizplus · Accepted Answer

The estimated amount of uncollectable net credit sales is 3% of $260,000, which is $7,800. Since the Allowance for doubtful debts account already has a credit balance of $4,000, the additional amount needed to adjust for the estimated bad debts expense is $3,800 ($7,800 - $4,000). Therefore, the amount of Bad debts expense reported on the income statement for 2016 will be $3,800. Therefore, the correct option is C.

The Allowance for Doubtful Debts Account Has a Credit Balance