Edsel Inc. has the following unadjusted year end trial balance information available for 2014:
$$\begin{array} { l r }
\text { Cash sales } & \$ 400,000 \
\text { Credit sales } & 600,000 \
\text { Ending accounts receivable balance } & 180,000 \
\text { Ending allowance for uncollectibles } & 1,500 \
\text { Estimated uncollectibles } & 2 \%
\end{array}$$
-If Edsel uses the sales revenue approach for estimating bad debt expense,the income statement should show an expense of
A)$10,000.
B)$12,000.
C)$14,000.
D)$20,000.

Question

Edsel Inc. has the following unadjusted year end trial balance information available for 2014:
$$\begin{array} { l r } 
\text { Cash sales } & \$ 400,000 \
\text { Credit sales } & 600,000 \
\text { Ending accounts receivable balance } & 180,000 \
\text { Ending allowance for uncollectibles } & 1,500 \
\text { Estimated uncollectibles } & 2 \%
\end{array}$$
-If Edsel uses the sales revenue approach for estimating bad debt expense,the income statement should show an expense of
A)$10,000.
B)$12,000.
C)$14,000.
D)$20,000.

Quizplus · Accepted Answer

The sales revenue approach for estimating bad debt expense calculates the expense based on a percentage of total sales. Total sales = Cash sales ($400,000) + Credit sales ($600,000) = $1,000,000. Estimated uncollectibles = 2% of total sales = 2% of $1,000,000 = $20,000.

Edsel Inc Has the Following Unadjusted Year End Trial Balance Information