During its first year of operations, Chocolate Passion, Inc., had sales of $361,000, all on account.

Industry experience suggests that Chocolate Passions uncollectibles will amount to 2% of credit
sales. At December 31, 2012, accounts receivable total $35,000. The company uses the
allowance method to account for uncollectibles.
1. Make Chocolate Passions journal entry for uncollectible-account expense using the
percent-of- sales method.
2. Show how Chocolate Passion should report accounts receivable on its balance sheet at
December 31, 2012.

SOLUTION
1.

2.

Uncollectible-Account Expense ($361,000 .02)..

Allowance for Uncollectible Accounts

7,220
7,220

Balance sheet
Accounts receivable...
Less: Allowance for uncollectible accounts
Accounts receivable, net

$35,000
(7,220)
$27,780