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On December 31, 2014, Wallace Company had significant amounts of accounts receivable as a result of credit sales to its customers. Wallace uses the allowance method based on credit sales to estimate bad debts. Past experience indicates that 2% of credit sales normally will not be collected. This pattern is expected to continue. Instructions (a) Discuss the rationale for using the allowance method based on credit sales to estimate bad debts. Contrast this method with the allowance method based on the balance in the trade receivables accounts. (b) How should Wallace Company report the allowance for doubtful accounts on its balance sheet at December 31, 2014? Also, describe the alternatives, if any, for presentation of bad debt expense in Wallace Company's 2014 income statement.

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