A contractor estimates doubtful accounts at 2% of ending receivables. If ending receivables are $386,000, what allowance should be recorded?
Correct Answer
C) $7,720
The allowance estimate is 2% of ending receivables, or $7,720.
Why This Is the Correct Answer
The allowance estimate is 2% of ending receivables, or $7,720.
Why the Other Options Are Wrong
Option A: $5,790
$5,790 is below the supported result for allowance for doubtful accounts; it likely uses the wrong base, period, or account bucket.
Option B: $6,860
$6,860 is below the supported result for allowance for doubtful accounts; it likely uses the wrong base, period, or account bucket.
Option D: $8,360
$8,360 is above the supported result for allowance for doubtful accounts; it likely adds an unsupported amount or compares the wrong financial base.
Memory Technique
Estimate and ending live in different drawers; Cpa Asks tells which opens.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section One, Managing Receivables, Bad Debts; use the job ledger figures in the stem and recompute the same accounting measure.
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