Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $6,000 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

a. $19,400.

b. $25,280.

c. $25,400.

d. $31,400.

Correct answer is C, $1,270,000 x .02 = $25,400. However, I still don't understand. Can you give me a more detailed solution and tell me why $1,270,000 x .02 = $25,400 is correct?