Question

# The Allowance for Bad Debts account has a credit balance of \$2,000 before the adjusting entry...

The Allowance for Bad Debts account has a credit balance of \$2,000 before the adjusting entry for bad debts expense. The​ company's management estimates that 3​% of net credit sales will be uncollectible for the year 2017. Net credit sales for the year amounted to \$260,000. What will be the balance of Allowance for Bad Debts on the December​ 31, 2017 balance​ sheet?

a. \$7,800

b. \$9,800

c. \$7,740

d. \$2,000

Allowance for bad debts, unadjusted = \$2,000

Net credit sales = \$260,000

Percentage uncollectibles = 3% of net credit sales

Bad debt expense = Net credit sales x Percentage uncollectibles

= 260,000 x 3%

= \$7,800

Allowance for bad debts, ending = Allowance for bad debts, unadjusted + Bad debt expense

= 2,000+7,800

= \$9,800

The balance of Allowance for Bad Debts on the December​ 31, 2017 balance​ sheet = \$9,800

Correct option is b.

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