Ending receivables are $418,000 and the allowance is estimated at 1.25% of receivables. What allowance should be recorded?
Correct Answer
D) $5,225
The allowance is 1.25% of ending receivables.
Why This Is the Correct Answer
The allowance is 1.25% of ending receivables.
Why the Other Options Are Wrong
Option A: $4,180
$4,180 is below the supported result for allowance for doubtful accounts; it likely uses the wrong base, period, or account bucket.
Option B: $4,702.50
$4,702.50 is below the supported result for allowance for doubtful accounts; it likely uses the wrong base, period, or account bucket.
Option C: $5,000
$5,000 is below the supported result for allowance for doubtful accounts; it likely uses the wrong base, period, or account bucket.
Memory Technique
Cpa Asks money test: bucket before math for allowance for doubtful.
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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