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) $5,600

Question

Quizplus · Accepted Answer

The estimated bad debts are 4% of $140,000, which is $5,600. Adding this to the existing credit balance of $2,700 in the allowance for doubtful accounts results in a new balance of $8,300.

Before Adjustment, the Allowance for Doubtful Accounts Has a Credit