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The Allowance for Bad Debts account has a credit balance of​ $2,000 before the adjusting entry for bad debts expense. The​ company's management estimates that​ 2% of net credit sales will be uncollectible for the year 2019. Net credit sales for the year amounted to​ $270,000. What will be the balance of Allowance for Bad Debts on the December​ 31, 2019 balance​ sheet?
(a) $5,400(b) $2,000(c) $7,400(d) $5,360

Respuesta :

Answer:

option (c) $7,400

Explanation:

Given:

Credit balance of Allowance for bad debts account = $2000

Uncollectible Net credit sales = 2%

Net credit sales = $270,000

Now,

The Amount of Uncollectible Net credit sales = 2% of Net credit sales

or

The Amount of Uncollectible Net credit sales = 0.02 ×  $270,000 = $5,400

Therefore,

the balance of Allowance for Bad Debts = $2,000 + $5,400 = $7,400

Hence, the correct answer is option (c) $7,400

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