Question

Yates Co. uses the allowance method to account for bad debts. At the end of the period, Yate's unadjusted trial balance shows an accounts receivable balance of $10,000; allowance for doubtful accounts balance of $400 (credit); and sales of $500,000. Based on history, Yates 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. $5,845b. $4,980c. $4,115d. $4,300e. $4,450

Answer 1

Answer:

Debit to bad debts expense in the amount of $5,000

Explanation:

The computation of the bad debt expense is shown below:

= Credit sales × estimated percentage given

= $500,000 × 1%

= $5,000

The journal entries are  also shown below; for better understanding

Bad debt expense A/c Dr  $5,000

  To Allowance for doubtful debts  $5,000

(Being bad debt expense is recorded)

The other information which is given in the question is not relevant. Hence, ignored it

Answer 2

The entry to record estimated bad debts will include a debit to bad debts expense in the amount of $5,000. Therefore, the correct answer is $5,000

Further Explanation:

Bad expenses account Dr $5,000

Allowance for doubtful account $5,000

To record the bad expense

To calculate the bad expense, you should multiply credit sales by the percentage of uncontrollable estimates. This can be expressed as:

Credit sales x percentage of uncontrollable estimates

From the given question:

• Credit sales = $500,000
• Percentage of the uncontrollable given = 1%

If you substitute the value, then you have:

$500,000 x 1%

= $5,000.

When a customer collects goods on credit from a company and doesn’t have the financial capacity to pay back, it will result in bad debt expenses or doubtful account expenses.

Bad debts expenses are accounts receivable (balance of money) that a customer or company is unable to pay due to financial problems

In other words, bad debt expenses are unfortunate losses that a firm suffers because its customers were not able to pay back the goods or products they took on credits.

Bad debts can be calculated in two ways and these include:

1. Direct write off method
2. Allowance method

LEARN MORE:

• Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance  https://brainly.com/question/13928272
• Flash Co. uses the allowance method to account for bad debts. At the end of 2010, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of https://brainly.com/question/13602614

KEYWORDS:

• account receivable
• allowance for doubtful account
• yates co.
• cash sales
• credit sales