Question: Before adjustment, the allowance for doubtful accounts has a credit balance of $2,700. The company had $140,000 of net credit sales during the period and

Before adjustment, the allowance for doubtful accounts has a credit balance of $2,700. The company had $140,000 of net credit sales during the period and historically fails to collect 4% of credit sales. The company uses the percentage of credit sales method of estimating doubtful accounts. After adjusting for estimated bad debts, the new balance in the allowance for doubtful accounts account should be:

$2,700.
$0.
$8,300.
$5,600.

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