Credit Losses Based on Credit Sales Smith & Sons uses the allowance method of handling its credit losses. It estimates credit losses at one percent of credit sales, which were $1,200,000 during the year. On December 31, the Accounts Receivable balance was $300,000 and the Allowance for Doubtful Accounts had a credit balance of $20,400 before adjustment. Prepare the adjusting entry to record the credit losses for the year. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.