BAD DEBT EXPENSE: PERCENTAGE OF CREDIT SALES METHOD Kelly’s Collectibles sells nearly half its merchandise on credit. During the past four years, the following data were developed for credit sales and losses from uncollectible accounts:

Year of Sales Credit Sales Losses from Uncollectible Accounts*

2006 $205,000 $15,527 2007 185,000 11,692 2008 209,000 14,184 2009 253,000 21,933 Total $852,000 $63,336

*Losses from uncollectible accounts are the actual losses related to sales of that year

(rather than write-offs of that year).

In 2010, Kelly’s Collectibles expanded its line significantly and began to sell to new kinds of customers.

Required:

. Calculate the loss rate for each year from 2006 through 2009.

. Determine if there appears to be a significant change in the loss rate over time.

. If credit sales for 2010 are $373,000, explain what loss rate you would recommend to estimate bad debts.

. Using the rate you recommend, record bad debt expense for 2010.