Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000
• Credit sales, $450,000
• Selling and administrative expenses, $110,000
• Sales returns and allowances, $30,000
• Gross profit, $290,000
• Accounts receivable, $110,000
• Sales discounts, $14,000
• Allowance for doubtful accounts credit balance, $1,200
Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been uncollectible. How much is Flyer's bad debt expense?
A) $7,950.
B) $6,750.
C)$5,550.
D)$7,800.

Question

Quizplus · Accepted Answer

First, we need to find out the total amount of credit sales that Flyer had during the year. This is calculated by subtracting the sales returns and allowances as well as the sales discounts from the total credit sales: 
$450,000 - $30,000 - $14,000 = $406,000

Next, we can calculate Flyer's estimated bad debt expense by multiplying the credit sales by the estimated uncollectible percentage: 
$406,000 x 1.5% = $6,090

To find the necessary adjusting entry, we need to calculate the current balance in the allowance for doubtful accounts account: 
$1,200 (credit balance) + $6,090 (estimated bad debt expense) = $7,290

This means that Flyer needs to make an adjusting entry to increase the allowance for doubtful accounts by $7,290.

Therefore, the correct answer is B) $6,750 (the estimated bad debt expense).

Flyer Company Has Provided the Following Information Prior to Any