Question

During its first year of operations, whippersnapper fun room earned net credit sales of $333,000. Industry experience suggests that bad debts will amount to 3% of net credit sales. At December 31, 2024, accounts receivable total $45,000. The company uses the allowance method to account for uncollectibles. What is the estimated amount of bad debts at December 31, 2024?

1) $9,990
2) $10,000
3) $10,500
4) $11,000

Answer 1

The estimated amount of bad debts for Whippersnapper Fun Room, based on 3% of its net credit sales of $333,000, is $9,990, making the correct answer 1) $9,990.

Step-by-step explanation:

To estimate the bad debts at the end of the year for Whippersnapper Fun Room, you should use the industry experience that suggests 3% of net credit sales will be uncollectible. Therefore, the estimated amount of bad debts is calculated as follows:

Net Credit Sales x Bad Debt Percentage = Estimated Bad Debts

$333,000 x 3% = $9,990

So, the correct answer is option 1) $9,990, which is the estimated bad debt for the first year of operations based on the given percentage of net credit sales.