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Flyer Company has provided the following information prior to any year-end bad debt adjustment: Cash sales,...

Flyer Company has provided the following information prior to any year-end bad debt adjustment:

  • Cash sales, $156,000
  • Credit sales, $456,000
  • Selling and administrative expenses, $116,000
  • Sales returns and allowances, $36,000
  • Gross profit, $496,000
  • Accounts receivable, $165,000
  • Sales discounts, $20,000
  • Allowance for doubtful accounts credit balance, $1,800

Flyer estimates bad debt expense assuming that 1% of credit sales have historically been uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded?

Multiple Choice

  • $4,320.

  • $2,760.

  • $6,360.

  • $4,560.

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Answer #1

Correct answer------------$6360

Working

Bad debts recorded (456000 x 1%) $          4,560.00
Add: Allowance for doubtful debts current balance   $          1,800.00
Net balance in allowance account $          6,360.00

Calculation of bad debts using % of sales method does not adjust the balance in allowance account before recording bad debts.

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