A company used the percent of sales method to determine its bad debts expense.At the end of the current year,the company's unadjusted trial balance reported the following selected amounts: All sales are made on credit.Based on past experience,the company estimates 0.5% of credit sales to be uncollectible.What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
A)$925
B)$1,225
C)$4,200
D)$4,500
E)$45,000

Question

A company used the percent of sales method to determine its bad debts expense.At the end of the current year,the company's unadjusted trial balance reported the following selected amounts:  All sales are made on credit.Based on past experience,the company estimates 0.5% of credit sales to be uncollectible.What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
A)$925 
B)$1,225 
C)$4,200 
D)$4,500 
E)$45,000

Quizplus · Accepted Answer

To calculate the amount of bad debts expense to be debited, we need to determine the credit sales for the year. As this information is not given in the question, we can use the fact that all sales are made on credit and use the total sales figure given in the trial balance ($900,000).

0.5% of $900,000 = $4,500, which should be debited to Bad Debts Expense when the year-end adjusting entry is prepared. Therefore, the answer is (D).

A Company Used the Percent of Sales Method to Determine