Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and decided to use a factor of 2% for their year-end adjustment of bad debts expense. At the end of the year, the balance of bad debts expense would be:
A)$150.
B)$800.
C)$250.
D)$1,450.

Question

Quizplus · Accepted Answer

The bad debts expense is calculated as 2% of the credit sales. Therefore, 2% of $40,000 is $800.

Smart Art Is a New Establishment