Historical Art is a new business. During its first year of operations, credit sales were $55,000 and collections on credit sales were $33,000. One account of $500 was written off. Management uses the percent-of-sales method to account for bad debts expense and estimates 3% of credit sales to be uncollectible. The ending balance of Allowance for Bad Debts account is ________.
A) $1150
B) $1650
C) $645
D) $2625
A) $1150
Explanation: 3% of credit sales ($55,000) = the adjustment (Credit) of $1650 to the Allowance for Bad Debts account. Because the write-off of $500 is a debit to the Allowance account, the ending balance is $1150.
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