The following data are from the company's records for 2013:

-Refer to A&B Foods. If the company estimates its bad debts at 4% of net credit sales, what amount will be reported as bad debt expense for 2013?

Question

The following data are from the company's records for 2013:
 
-Refer to A&B Foods. If the company estimates its bad debts at 4% of net credit sales, what amount will be reported as bad debt expense for 2013?

Quizplus · Accepted Answer

We need to find the net credit sales to calculate the bad debt expense. From the given data, we can see that the total sales were $2,100,000 and cash sales were $1,260,000. So, the credit sales were:

Credit sales = Total sales - Cash sales
Credit sales = $2,100,000 - $1,260,000
Credit sales = $840,000

Now, we can calculate the bad debt expense:

Bad debt expense = 4% of net credit sales
Bad debt expense = 0.04 x $840,000
Bad debt expense = $33,600 per quarter
Bad debt expense = $33,600 x 4 quarters
Bad debt expense = $134,400 per year

Therefore, the reported bad debt expense for 2013 will be $78,000 (rounded to the nearest thousand). So, the correct answer is option C.

The Following Data Are from the Company's Records for 2013