Question

Sully Corporation uses an allowance method for accounting for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of credit sales and $100,000 of cash sales during the year, the adjustment for estimated uncollectible accounts will require a:___________.

Answer 1

Answer:

$4000

Explanation:

The total sales would the sum of credit sales and sales on cash basis,in effect total sales is $200,000($100,000+$100,000).

The estimate for allowance for uncollectible debt is 2% of total sales,which is $4000 (2%*$200,0000)

Hence,the correct answer in this case is $4000 and it implies that Sully Corporation intends to receive $96,000 in cash out of the debt to its by customers($100,000-$4,000)