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Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:A. $800 B. $1.100 C. $10.000 D. $9,700 E. $10,900 F. $500.

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Answer:

F. $500

Explanation:

At the end of the period, accounts receivable balance of $40,000

Bad debts are estimated: 2% x $40,000 = $800

Before adjusting, allowance for doubtful accounts balance of $300 (credit) and the company uses the allowance method to account for bad debts. Therefore,

Bad debts expense = $800 - $300 = $500

The entry will be made:

Debit Bad debts expense $500

Credit Allowance for doubtful accounts $500

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