The December 31,the trial balance of ABC company before adjustments included the following accounts: The company estimates its bad debts based upon 2 percent of net credit sales.What amount should it record as bad debt expense,assuming all sales are credit sales?
A)$14,400
B)$14,600
C)$16,400
D)$16,600

Question

The December 31,the trial balance of ABC company before adjustments included the following accounts:  The company estimates its bad debts based upon 2 percent of net credit sales.What amount should it record as bad debt expense,assuming all sales are credit sales?
A)$14,400 
B)$14,600 
C)$16,400 
D)$16,600

Quizplus · Accepted Answer

To calculate the bad debt expense, we need to first calculate the net credit sales. Net credit sales can be calculated by subtracting sales returns and allowances from the total sales.

Total Sales = $860,000 
Sales Returns and Allowances = $40,000 
Net Credit Sales = $820,000

Then, we can calculate the bad debt expense by multiplying the net credit sales by the estimated bad debt percentage.

Bad Debt Expense = 2% x $820,000 = $16,400

Therefore, the correct answer is C) $16,400.

The December 31,the Trial Balance of ABC Company Before Adjustments