A company has net sales of $50,000 during the year.At year end (before an adjustment is made),Allowance for Uncollectible Accounts has a credit balance of $2,500.If the company estimates that 3 percent of net sales are uncollectible,what is the balance in the allowance account after the year-end adjustment has been made using the percentage of net sales method?
A)$1,500 debit balance
B)$1,500 credit balance
C)$4,000 credit balance
D)$1,000 debit balance

Question

Quizplus · Accepted Answer

The percentage of net sales method estimates the amount of uncollectible accounts based on a percentage of net sales.

3% of $50,000 = $1,500

Since the allowance account currently has a credit balance of $2,500, we need to subtract $1,500 from it to get the balance after the adjustment:

$2,500 - $1,500 = $1,000

However, since the original balance in the allowance account was a credit, the adjustment needs to be added as a credit as well:

$1,000 + $3,000 = $4,000

Therefore, the balance in the allowance account after the adjustment using the percentage of net sales method is a credit balance of $4,000, which is choice C.

A Company Has Net Sales of $50,000 During the Year