Morrow Inc.uses the percentage of credit sales method of estimating doubtful accounts.The Allowance for Doubtful Accounts has an unadjusted credit balance of $2,700 and the company had $140,000 of net credit sales during the period.Morrow has experienced bad debt losses of 6% of credit sales in prior periods.After making the adjusting entry for estimated bad debts,what is the ending balance in the Allowance for Doubtful Accounts account?

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
= $140,000 × 0.06 = $8,400
Ending balance in Allowance for Doubtful Accounts = Unadjusted credit balance in Allowance for Doubtful Accounts + Bad Debt Expense
= $2,700 + $8,400 = $11,100