Question

Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of credit sales will be uncollectible. On January 1, the Allowance for Doubtful Accounts had a credit balance of $2,400. During the year, Abbott wrote off accounts receivable totaling $1,800 and made credit sales of $100,000. After the adjusting entry, the December 31 balance in Bad Debt Expense will be:
A. $3,000
B. $1,200
C. $7,200
D.$3,600

Answer 1

Answer:

The correct answer is option (A).

Explanation:

According to the scenario, the given data are as follows:

credit sales = $100,000

Uncollectible percentage = 3%

So, after the adjusting entry by using allowance method, the Bad debt expense can be calculated as follows:

Bad debt expense = Credit sales × Uncollectible percentage

= $100,000 × 3%

= $100,000 × 0.03

= $3,000