The Rafi M. company, which has been in business for 3 years, makes all of its sales on credit and does not offer cash discounts. Credit sales, customer collections, and write-offs of uncollectible accounts for its first 3 years follow:

a. Rafi M. estimates uncollectibles to be 10% of accounts receivable (that is, it uses the balance sheet approach). Identify the ending balance amount on the accounts receivable and the allowance for uncollectible accounts reported on the balance sheet for each of the 3 years and the total amount of bad debt expenses that appears on the income statement for each of the 3 years.

b. Comment on the appropriateness of the 10% rate used by Rafi M. to provide for bad debts based on your results in part a above.

c. A consultant suggested using the income statement approach for determination of bad debt expense. What percentage would yield the same balance for the allowance for uncollectible accounts at the end of 2012, as is under the currently used method?

Year 2010 2011 2012 Sales $751,000 876,000 972,000 Accounts Collections Written Off $533,000 $5,300 5,800 864,000 6,500 938,000