Jefferson uses the percent of method of estimating uncollectible expenses.Based on past history,2% of credit sales are expected to be uncollectible.Sales for the current year are $5,550,000.Which of the following is correct?
A)Uncollectible accounts are estimated to be $55,500.
B)Uncollectible accounts are estimated to be $111,000.
C)Bad debt expense is estimated to be $5,550.
D)Bad debt expense is estimated to be $11,100.

Question

Quizplus · Accepted Answer

To estimate the uncollectible accounts, Jefferson uses the percent of credit sales method. According to this method, 2% of credit sales are expected to be uncollectible. Therefore, the estimated uncollectible accounts are:
2% of $5,550,000 = 0.02 x $5,550,000 = $111,000
So, the correct answer is B. Option A is incorrect because it is only half of the estimated amount. Option C is incorrect because it is the estimated bad debt expense, not the estimated uncollectible accounts. Option D is also incorrect because it is double the estimated bad debt expense.

Jefferson Uses the Percent of Method of Estimating Uncollectible Expenses