Finish Co. uses the allowance method to account for bad debts. At the end of 2010, Finish Co.'s unadjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (credit); and sales of $600,000. Based on history, Finish estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

a. $500

b. $6,200

c. $100

d. $5,800

e. $6,000

Question

Shiloh Padilla

Business

15 June, 06:59

Finish Co. uses the allowance method to account for bad debts. At the end of 2010, Finish Co.'s unadjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (credit); and sales of $600,000. Based on history, Finish estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

a. $500

b. $6,200

c. $100

d. $5,800

e. $6,000

+5

Answers (1)

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Hays · Answer 1

The answer is: D) $5,800

Explanation:

The doubtful accounts should have a total balance of $6,000, representing 1% of total sales ( = $600,000 x 1%).

Since doubtful accounts balance is only $200, you must entry a debit record of $5,800 (so that the total balance of that account is $6,000).