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 aging-of-receivables method to account for bad debts expense, and estimated $500 as uncollectible at year end. Therefore, the ending balance in the Allowance for Bad Debts would be:
A)$150.
B)$800.
C)$200.
D)$500.

Question

Quizplus · Accepted Answer

The aging-of-receivables method estimates the amount of uncollectible accounts receivable at the end of the year based on the age of the individual accounts. The company estimated $500 as uncollectible at year end, which means that the Allowance for Bad Debts needs to be increased by $500. The balance in the account before this adjustment was made was not provided in the question, so we cannot calculate it. Therefore, the ending balance in the Allowance for Bad Debts would be $500 after the adjustment.

Smart Art Is a New Establishment