Chapter 8, Problem 8.6SE

Applying the allowance method (percent-of-sales) to account for uncollectibles

During its first year of operations, Signature Lamp Company earned net credit sales of $314,000. Industry experience suggests that bad debts will amount to 4% of net credit sales. At December 31, 2016, accounts receivable total $45,000. The company uses the allowance method to account for uncollectibles.

Requirements

1. Journalize Signature’s Bad Debts Expense using the percent-of-sales method.

2. Show how to report accounts receivable on the balance sheet at December 31, 2016.