A company sells a particular product only in the last month of its fiscal year. The company uses commission agents for such sales and pays them 6% of their net sales 30 days after the sales are made. The agents' sales were $10 million. Experience indicates that 10% of the sales are usually not collected and 2% are returned in the first month of the new year. The auditor would expect the year-end balance in the accrued commissions payable account to be:
A)$528,000.
B)$540,000.
C)$588,000.
D)$600,000.

Question

Quizplus · Accepted Answer

The net sales for the agents' sales would be:
$10 million - 10% (uncollected sales) = $9 million
$9 million * 6% (commission rate) = $540,000 (accrued commission payable)

However, 2% of the sales ($200,000) are returned in the first month of the new year, so the company would subtract that from the accrued commissions payable balance, resulting in a final estimate of:
$540,000 - $200,000 = $340,000

Therefore, the auditor would expect the year-end balance in the accrued commissions payable account to be $588,000 (Choice C).

A Company Sells a Particular Product Only in the Last