Question

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

During its first year of operations, Fall Wine Tour earned net credit sales of $311,000.Industryexperiencesuggeststhatbaddebtswillamountto3$44,000. The company uses the allowance method to account for uncollectibles.

Requirements

1. Journalize Fall Wine Tour’s Bad Debts Expense using the percent-of-sales method.

2. Show how to report accounts receivable on the balance sheet at December 31, 2018

Short answer

The percent-of-sales method computes bad debts expense as a percentage of net credit sales.

It’s a one of the method widely used to estimate the bad debts expenses.

Bad Debts expenses = $311,000* 3%

= $ 9,330

Step-by-step solution

Requirement 1: Journalize the transactions of Fall Wine

Date	Account and explanation	Debit	Credit
2018
	Accounts receivable Sales Revenue (Sold goods on account)	$ 311,000	$ 311,000
	Cash Sales Revenue (Sold goods on account)	$ 267,000	$267,000
	Allowance for Bad Debts Accounts Receivable (Wrote off an uncollectible account)	$ 9,330	$ 9,330

Requirement 2: report net accounts receivable on its December 31, 2018

Particular’s	As at December, 2018
Accounts Receivable Less: Allowance for Bad Debts	$ 44,000 $ (9,330)
Net Realizable Value	$34,670