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 gross accounts receivable approach for estimating bad debt expense,the income statement will show an expense of
A)$2,100.
B)$3,600.
C)$5,100.
D)$8,500.

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 gross accounts receivable approach for estimating bad debt expense,the income statement will show an expense of
A)$2,100.
B)$3,600.
C)$5,100.
D)$8,500.

Quizplus · Accepted Answer

The gross accounts receivable approach estimates bad debt expense as a percentage of credit sales. In this case, the estimated uncollectibles percentage is 2%, and credit sales were $600,000. Therefore, the bad debt expense is $600,000 * 2% = $12,000. However, the allowance for uncollectibles already has a balance of $1,500, so the income statement will only show an expense of $12,000 - $1,500 = $10,500.

Edsel Inc Has the Following Unadjusted Year End Trial Balance Information