A company uses the percent of receivables method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:

Accounts receivable: $445,000 Debit Allowance for Doubtful Accounts: 1,350 Debit Net Sales: 2,200,000 Credit

All sales are made on credit. Based on past experience, the company estimates 2.5% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A) Debit Bad debts expense $11,125; credit allowance for doubtful accounts $11,125

B) Debit Bad debts expense $9,775; credit allowance for doubtful accounts $9,775

C) Debit Bad debts expense $15,500; credit allowance for doubtful accounts $15,500

D) Debit Bad debts expense $12,475; credit allowance for doubtful accounts $12,475

E) Debit Bad debts expense $5,500; credit allowance for doubtful accounts $5,500

PLEASE GIVE COMPLETE EXPLANATION. THANKS.