The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: $$\begin{array} { | l | r | l | }
\hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit } \
\hline
\end{array}$$ All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
A) Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.
B) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
C) Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.
D) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
E) Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.

Question

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: $$\begin{array} { | l | r | l | } 
\hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit } \
\hline
\end{array}$$ All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
A) Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.
B) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
C) Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.
D) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
E) Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.

Quizplus · Accepted Answer

The estimated bad debts expense is 3.5% of ending accounts receivable, which is $470,500 ($13,500 + $6,000 + $451,000). Therefore, the adjusting entry should be a debit to Bad Debts Expense for $16,475 ($470,500 x 3.5%) and a credit to Allowance for Doubtful Accounts for $16,475. Choice C is the only option that matches this amount.

The Unadjusted Trial Balance at Year-End for a Company That