This question has two parts.

Part 1

Assume a firm uses the Percentage of Credit Sales Method to estimate its bad debts expense. If sales are $100,000 and the firm does not expect to collect 2% of these sales, how much bad debt expense will the firm record if the allowance for doubtful accounts (AFDA) has a balance of $3,000 before any adjustment?

a. $600

b. $5,000

c. $3,000

d. $2,000

Part 2

An aging of a company's accounts receivable indicates the estimate of uncollectible receivables totals $7,900. How much bad debt expense will the firm record if the allowance for doubtful accounts (AFDA) has a balance of $700 before any adjustment?

a. $7,200

b. $700

c. $7,900

d. $8,600