Question

Finish Co. uses the allowance method to account for bad debts. At the end of 2010, Finish Co.'s un-adjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (credit); and sales of $600,000. Based on history, Finish estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:_______.
a. $500.
b. $6, 200.
c. $100.
d. $5, 800.
e. $6,000.

Answer 1

Answer:

$5,800

Explanation:

Finish Co. uses the allowance method to account for bad debts. At the end of 2010,

Finish Co.'s un-adjusted trial balance shows an accounts receivable balance of $30,000;

allowance for doubtful accounts balance of $200 (credit);

and sales of $600,000.

Based on history, Finish estimates that bad debts will be 1% of sales.

The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:_______.

Total Bad debts at year end  = 1% of Sales = 0.01 x 600,000 = $6,000

Amount of Allowance for Doubtful accounts = $200

Therefore the debit to Bad Debts Expense in the amount of $6000 - $200 = $5,800