Plasma Inc.uses the percentage of credit sales method to estimate Bad Debt Expense.The company reported net credit sales of $500,000 during the year.Plasma has experienced bad debt losses of 2% of credit sales in prior periods.At the beginning of the year,Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000.No write-offs or recoveries were recorded during the year.What amount of Bad Debt Expense should Plasma recognize for the year?
A) $4,000
B) $6,000
C) $10,000
D) $14,000

Question

Quizplus · Accepted Answer

Using the percentage of credit sales method, Bad Debt Expense is calculated as a percentage of net credit sales. In this case, 2% of $500,000 is $10,000. Since no write-offs or recoveries were recorded during the year, the credit balance in the Allowance for Doubtful Accounts remains at $4,000. Therefore, the amount of Bad Debt Expense that Plasma should recognize for the year is $10,000.