Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $25,000 of service on account. The company collected $21,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account.
The amount of uncollectible accounts expense to recognize on the 2014 income statement is:
A) $80.
B) $250.
C) $480.
D) $500.

Question

Quizplus · Accepted Answer

The uncollectible accounts expense is calculated as 2% of sales on account. Sales on account for 2014 were $25,000, so the expense is 2% of $25,000, which equals $500.

Bay Company Began Using the Allowance Method in 2014