A newly created design business called Smart Art is just finishing up its first year of operations. During the year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. Smart Art uses the aging method to account for uncollectible account expense. It has estimated $200 as uncollectible at year-end. At the end of the year, what is the ending balance in the Bad Debts Expense account?
A)$1,150
B)$800
C)$200
D)$850

Question

Quizplus · Accepted Answer

Using the aging method, the estimated allowance for uncollectible accounts is calculated as follows:

30 days or less: $0 (assumed to be collectible)
31-60 days: $40,000 x 2% = $800
Over 60 days: $0 (no accounts in this category)

Therefore, the estimated allowance for uncollectible accounts is $800. Since there was a write-off of $650 during the year and an additional estimated uncollectible expense of $200 at year-end, the ending balance in the Bad Debts Expense account would be $850 ($650 + $200).

A Newly Created Design Business Called Smart Art Is Just