Answer:
D) Debit Bad Debts Expense $1,683; credit Allowance for Doubtful Accounts $1,683.
Explanation:
First thing to do is to complete the question as:
Based on past experience, the company estimates 0.3% of net credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
Multiple Choice
A) Debit Bad Debts Expense $1,728; credit Allowance for Doubtful Accounts $1,728.
B) Debit Bad Debts Expense $3,063; credit Allowance for Doubtful Accounts $3,063.
C) Debit Bad Debts Expense $1,038; credit Allowance for Doubtful Accounts $1,038.
D) Debit Bad Debts Expense $1,683; credit Allowance for Doubtful Accounts $1,683.
E) Debit Bad Debts Expense $2,373; credit Allowance for Doubtful Accounts $2,373.
Solution
Part 1) Determine the estimated uncollectible this will be based on the past experiences. The calculation is as follows
Net Sales x The Company's estimate of net credit sales which are uncollectible
= $791,000 x 0.3 = $2,373
Part 2: Determine the total amount in the adjusting entry as follows
The calculation will be as follows:
The estimated uncollectible calculated in part 1 - the given allowance for the uncollectible account (allowance for doubtful accounts)
<u>Note we are subtracting the amount in the doubtful accounts because it is a credit and not a debit figure</u>
Therefore:
$2,373 - $690 = $1,683
Based on the figures we do the following
D) Debit Bad Debts Expense $1,683; credit Allowance for Doubtful Accounts $1,683.
