Data for the year ended December 31 are presented below.Sales (100% on credit)

-Refer to A&B Foods. If the company estimates its bad debts at 4% of net credit sales, what amount will be reported as bad debt expense?

Question

Data for the year ended December 31 are presented below.Sales (100% on credit)
 
-Refer to A&B Foods. If the company estimates its bad debts at 4% of net credit sales, what amount will be reported as bad debt expense?

Quizplus · Accepted Answer

Since the company estimates its bad debts at 4% of net credit sales, we need to first calculate the net credit sales. Net credit sales = Total Sales - Sales returns and allowances, which in this case is not given. Therefore, we cannot calculate the exact amount for the bad debt expense. However, we can estimate it by assuming that the sales returns and allowances are negligible. In that case, the net credit sales would be $ 1,200,000 ( $ 1,000,000 / (100% - 10%)) and 4% of that would be $ 48,000. Therefore, the closest option is C, $78,000, as it accounts for a possible increase in sales returns and allowances.

Data for the Year Ended December 31 Are Presented Below