Coral Gables ending receivables are $592,000 and the allowance is estimated at 1.50% of receivables. What allowance should be recorded?
Correct Answer
D) $8,880
The allowance is the ending receivable balance multiplied by the stated estimate percentage.
Why This Is the Correct Answer
The allowance is the ending receivable balance multiplied by the stated estimate percentage.
Why the Other Options Are Wrong
Option A: $7,104
$7,104 is below the supported result for allowance for doubtful accounts; it likely uses the wrong base, period, or account bucket.
Option B: $10,656
$10,656 is above the supported result for allowance for doubtful accounts; it likely adds an unsupported amount or compares the wrong financial base.
Option C: $11,840
$11,840 is above the supported result for allowance for doubtful accounts; it likely adds an unsupported amount or compares the wrong financial base.
Memory Technique
Allowance For Doubtful drawer for Cpa Asks: label ending before counting dollars.
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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