BAD DEBT EXPENSE: PERCENTAGE OF CREDIT SALES METHOD The Glass House, a glass and china store, 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 $197,000 $12,608 2007 202,000 13,299 2008 212,000 13,285 2009 273,000 22,274 Total $884,000 $61,466

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

(rather than write-offs of that year).

In 2010, The Glass House 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 whether there appears to be a significant change in the loss rate over time.

. If credit sales for 2010 are $392,000, determine what loss rate you would recommend to estimate bad debts.

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