5-26

1. Write-Off of Uncollectible Accounts

   The Rock has credit sales of $500,000 during 2019 and estimates at the end of 2019 that 2% of these credit sales will eventually default. Also, during 2019 a customer defaults on a $1,900 balance related to goods purchased in 2019.

   Required:

   1. Prepare the journal entry to record the defaulted balance.

   	Record write-off of defaulted account

   2. Prepare the adjusting entry to record the bad debt expense for 2019.

   	Record adjusting entry for bad debt expense estimate

5-83A

1. 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 4 years, the following data were developed for credit sales and losses from uncollectible accounts:

   Year of Sales	Credit Sales			Losses from Uncollectible Accounts*
   2016		$197,000			$12,608
   2017		202,000			13,299
   2018		212,000			13,285
   2019		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).

   Required:

   1. Calculate the loss rate for each year from 2016 through 2019. Round your answers to three decimal places.

   Year	Loss Rate
   2016
   2017
   2018
   2019

   2. Is there a significant change in the loss rate over time?

   • Yes
   • No

   3. Conceptual Connection: The weighted average for the 4 years (rounded to three decimals) is .

   If credit sales for 2020 are $400,000, what rate would you recommend to estimate bad debts? A rate closer to would be more conservative.

   Feedback

   4. If credit sales for 2020 are $400,000 and using the rate you recommended above, record bad debt expense for 2020.

   	Accounts Payable Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense Sales Revenue
   	Accounts Payable Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense Sales Revenue
   	Record adjusting entry for bad debt expense estimate

   Feedback

   5. Conceptual Connection: Using the data from 2016 through 2019, estimate the change in income from operations in total for those 4 years assuming (a) the average gross margin is 25% and (b) 50% of the sales would have been lost if no credit was granted.

   Increase Decrease in gross margin	$
   Increase Decrease in income from operations	$