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.
#10,000,000 x 98% = $9,800,000 Net Sales x 6% commission percentage = $588,000 estimated accrued commissions payable.

Question

Quizplus · Accepted Answer

The calculation for estimated accrued commissions payable is:
Net sales ($10,000,000) x percentage of sales that are collected (90%) x commission percentage (6%) = $540,000.
However, there will be returns in the first month of the new year, which are estimated at 2% of sales ($10,000,000 x 2% = $200,000). This means that the actual accrued commissions payable will be lower by that amount, resulting in an expected year-end balance of $540,000 - $200,000 = $340,000.
Therefore, the best choice is C.

A Company Sells a Particular Product Only in the Last