Question

VFC has experienced bad debt losses of ¾ of 1 percent of credit sales in prior periods.

Credit sales in January total $120,000.
a. $800
b. $900
c. $1,200
d. $1,500

Answer 1

To find the expected bad debt, multiply January's credit sales of $120,000 by 0.0075, resulting in expected bad debt of $900.

Step-by-step explanation:

To calculate the bad debt losses as a percentage of credit sales, you would multiply the credit sales amount by the percentage of bad debt loss expected. Given that VFC has a history of bad debt losses equivalent to ¾ of 1 percent of credit sales, we first convert this percentage into a decimal form. ¾ of 1 percent is equal to 0.75% or 0.0075 in decimal.

For January's credit sales totaling $120,000, the calculation would be:

Multiply the total credit sales by the decimal value of the bad debt percentage:

$120,000 × 0.0075 = $900.

Therefore, the amount of bad debt expected from January's credit sales is $900, which corresponds to option b. This is calculated by multiplying $120,000 by 0.0075.