Question

Superior Company has provided you with the following information before any year-end adjustments:

Net credit sales are $120,000.
Historical percentage of credit losses is 2%.
Allowance for doubtful accounts has a credit balance of $300.
Accounts receivables ending balance is $47,000.
What is the estimated bad debt expense using the percentage of credit sales method?
O $2,100.
O $2,400.
O $940.
O $2,700.

Answer 1

The estimated bad debt expense for Superior Company using the percentage of credit sales method is $2,400, calculated by multiplying net credit sales ($120,000) by the credit loss rate (2%).

Step-by-step explanation:

The estimated bad debt expense using the percentage of credit sales method is calculated by taking the net credit sales and multiplying it by the historical percentage of credit losses. In this case, we have net credit sales of $120,000 and a historical loss rate of 2%. The calculation is as follows:

$120,000 (Net Credit Sales) x 2% (Credit Loss Rate) = $2,400 (Estimated Bad Debt Expense)

So, the estimated bad debt expense for Superior Company using the percentage of credit sales method is $2,400.