Question

Milo Company uses the percent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $100,000, and management estimates 4% will be uncollectible. Allowance for Doubtful Accounts prior to adjustment has a credit balance of $3,000. The amount of expense to report on the income statement will be
A. $7,000.
B. $4,000
C. $6,000
D. $1,500

Answer 1

Answer:

correct option is B. $4,000

Explanation:

given data

Net credit sales =  $100,000

management estimates = 4%

solution

we know here Net credit sales is = 100000  

so bad debts expenses will be

debts expenses = 100000 × 4%

debts expenses = $4000

so amount of expense to report on the income statement will be $4000

and after adjustments = will be $4000 + $3000 = $7,000

so correct option is B. $4,000