Credit Losses Based on Credit Sales

Gregg Company uses the allowance method for recording its expected credit losses. It estimates credit losses at three percent of credit sales, which were $900,000 during the year. On December 31, the Accounts Receivable balance was $150,000, and the Allowance for Doubtful Accounts had a credit balance of $12,200 before adjustment.

a. Prepare the adjusting entry to record the credit losses for the year b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.