Hi, can anyone please help me to solve this question? i set $40,000 was wrong. 1

Question

Hi, can anyone please help me to solve this question?

i set $40,000 was wrong. 160,000 * 1/4 = 40,000 (Wrong)

Thank you

Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November 2013, ITI sold services on account for $160,000 and estimated that 1/4 of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $80,100, aged as follows: (1) 1-30 days old, $66,000; (2) 31-90 days old, $11,000; and (3) more than 90 days old, S3.100. Experience has shown that for each age group, the average rate of uncollectibility is (1) 11 percent, (2) 22 percent, and (3) 44 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1.150 credit balance at December 31, 2013. Required: Prepare the November 2013 adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Explanation / Answer

160,000 *.01*1/4= 400 (you used 1/4 instead of 1/4%)

(If a company had 1/4 of its credit sales go bad it wouldn't be in business long)

DR Bad debt expense 400

CR Allowance for doubtful accounts 400

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