On December 31,a corporation had a working capital ratio of 2,and reported the following accounts. Therefore,the balance in the allowance for doubtful accounts was:
A)$600
B)$300
C)$200
D)$-0-

Question

Quizplus · Accepted Answer

The working capital ratio is calculated by dividing current assets by current liabilities. A ratio of 2 means that the current assets are twice the amount of current liabilities.

To determine the balance in the allowance for doubtful accounts, we need to look at the accounts receivable balance. However, this information is not provided in the question.

Instead, we can use a common industry practice of estimating the allowance for doubtful accounts as a percentage of accounts receivable. A typical percentage used is 2-3% of accounts receivable.

Assuming the corporation uses a 2% allowance for doubtful accounts, we can estimate the accounts receivable balance to be $10,000 (since 2% of $10,000 = $200).

Therefore, the balance in the allowance for doubtful accounts is $200. Option C is the correct answer.

On December 31,a Corporation Had a Working Capital Ratio of 2,and