Kelton Inc.reported net credit sales of $450,000 for the current year.The unadjusted credit balance in its Allowance for Doubtful Accounts is $750.The company has experienced bad debt losses of 1% of credit sales in prior periods.Using the percentage of credit sales method,what amount should the company record as an estimate of Bad Debt Expense?
A)$3,750
B)$4,500
C)$4,470
D)$4,800

Question

Quizplus · Accepted Answer

The percentage of credit sales method estimates Bad Debt Expense by multiplying the historical percentage of bad debt losses by the current period's credit sales.
Bad Debt Expense = Net credit sales × Bad debt loss rate
= $450,000 × 0.01 = $4,500