Calculate the loss rate for each year

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Reference no: EM13939060

BAD DEBT EXPENSE: PERCENTAGE OF CREDIT SALES METHOD

The Glass House, a glass and china store, sells nearly half its merchandise on credit. Dur- ing the past four years, the following data were developed for credit sales and losses from uncollectible accounts:

Year of Sales	Credit Sales	Losses from Uncollectible Accounts*
2006	$197,000	$12,608
2007	202,000	13,299
2008	212,000	13,285
2009	273,000	22,274
Total	$884,000	$61,466

*Losses from uncollectible accounts are the actual losses related to sales of that year (rather than write-offs of that year).

In 2010, The Glass House expanded its line significantly and began to sell to new kinds of customers.

Required:

1. Calculate the loss rate for each year from 2006 through 2009.

2. Determine whether there appears to be a significant change in the loss rate over time.

3. If credit sales for 2010 are $392,000, determine what loss rate you would recom- mend to estimate bad debts.

4. Using the rate you recommend, record bad debt expense for 2010.

Reference no: EM13939060

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