A&B Foods Data for the year ended December 31,2012,are presented below.
$\begin{array}{l}
\text {Sales (100\% on credit) } &\$ 2,100,000 \
\text { Sales retuns } &150,000 \
\text {Accounts Receivable (December 31, 2012) } &420,000 \
\text { Allowance for Doubtful Accounts } &\
\text {(Before adjustment at December 31, 2012) } &25,000 \
\text { Estimated amount of uncollected accounts based on an aging analysis } &75,000
\end{array}$
-Refer to A&B Foods.If the company uses 4% of net credit sales to estimate its bad debts,what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

Question

A&B Foods Data for the year ended December 31,2012,are presented below.
$\begin{array}{l}
 \text {Sales (100\% on credit) } &\$ 2,100,000 \
 \text { Sales retuns } &150,000 \
 \text {Accounts Receivable (December 31, 2012) } &420,000 \
 \text { Allowance for Doubtful Accounts } &\
 \text {(Before adjustment at December 31, 2012) } &25,000 \
 \text { Estimated amount of uncollected accounts based on an aging analysis } &75,000
\end{array}$ 
-Refer to A&B Foods.If the company uses 4% of net credit sales to estimate its bad debts,what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

Quizplus · Accepted Answer

First, we need to calculate the net credit sales:

Net credit sales = Sales - Sales returns
Net credit sales = $2,100,000 - $150,000
Net credit sales = $1,950,000

Then, we need to calculate the amount of bad debts using the 4% estimation:

Bad debts = Net credit sales x 4%
Bad debts = $1,950,000 x 4%
Bad debts = $78,000

Now, we can calculate the balance in the Allowance for Doubtful Accounts after the adjustment:

Allowance for Doubtful Accounts = Previous balance + Bad debts - Estimated amount
Allowance for Doubtful Accounts = $25,000 + $78,000 - $75,000
Allowance for Doubtful Accounts = $103,000

Therefore, the best choice is B, with an explanation that includes the calculation process.

A&B Foods Data for the Year Ended December 31,2012,are Presented