Question

Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct?

A. Uncollectible accounts are estimated to be $111,000.
B. Bad debt expense it estimated to be $11,100.
C. Bad debt is estimated to be $5,550.
D. Uncollectible accounts are estimated to be $55,500.

Answer 1

After calculating the uncollectible accounts by multiplying the total credit sales of $5,550,000 by the uncollectible percentage of 2%, the estimated bad debt amount is $111,000, making option A the correct answer.

Step-by-step explanation:

The student has provided information that uses the percent of sales method to estimate uncollectible accounts. This method predicts bad debt based on a percentage of credit sales. In this scenario, 2% of the credit sales are expected to be uncollectible, and the credit sales amount to $5,550,000 for the current year.

To calculate the estimated uncollectible accounts:

• Multiply the total credit sales by the uncollectible percentage: $5,550,000 × 0.02.
• This calculation results in an estimated amount of $111,000.

Therefore, the correct answer is:

A. Uncollectible accounts are estimated to be $111,000.