Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct?
A) Uncollectible accounts are estimated to be $55,500.
B) Uncollectible accounts are estimated to be $111,000.
C) Bad debt expense is estimated to be $5,550.
D) Bad debt expense is estimated to be $11,100.

Question

Quizplus · Accepted Answer

If 2% of credit sales are expected to be uncollectible, then to estimate the uncollectible accounts, we need to multiply 2% by the sales.

2% of $5,550,000 = 0.02 x $5,550,000 = $111,000

Therefore, the estimated uncollectible accounts are $111,000. Option B is the correct choice. Option A and C are both incorrect because they do not take into account the percentage of credit sales that are expected to be uncollectible. Option D is incorrect because it only estimates the bad debt expense, not the total uncollectible accounts.

Jefferson Uses the Percent of Sales Method of Estimating Uncollectible