Before adjustment,the allowance for doubtful accounts has a credit balance of $2,700.The company had $140,000 of net credit sales during the period and historically fails to collect 4% of credit sales.The company uses the percentage of credit sales method of estimating doubtful accounts.After adjusting for estimated bad debts,the new balance in the allowance for doubtful accounts account will be:
A)$8,300.
B)$5,400.
C)$2,900.
D)Cannot be determined from the information given.

Question

Quizplus · Accepted Answer

The balance in the allowance account will be increased by the amount of the bad debt expense recorded at the end of the year.
$140,000 * .04 = $5,600
$5600 + 2,700 = $8,300.

Before Adjustment,the Allowance for Doubtful Accounts Has a Credit Balance