1. Suzuki estimates 12% of receivables: Net income (before taxes) in 2021 decreases by $5,500 and total assets in 2021 decreases by $5,500
2. Suzuki estimates 3% of credit sales: Net income (before taxes) in 2021 decreases by $7,800 and total assets in 2021 decreases by $7,800
Calculation :
1. Suzuki estimates 12% of receivables
Bad debts are estimated: 12% x $55,000 = $6,600
Before adjusting, Allowance for Uncollectible Accounts balance of $1,100 (credit).
Bad debts expense = $6,600 - $1,100 = $5,500
The entry will be made: Debit Bad debts expense $5,500
Credit Allowance for Uncollectible Accounts $5,500
Net income (before taxes) in 2021 decreases by $5,500 and total assets in 2021 decreases by $5,500
2. Suzuki estimates 3% of credit sales
Bad debts are estimated: 3% x $260,000 = $7,800
The company uses the percentage of sales method.
Bad debts expense = $7,800
The entry will be made: Debit Bad debts expense $7,800
Credit Allowance for Uncollectable Accounts $7,800
Net income (before taxes) in 2021 decreases by $7,800 and total assets in 2021 decreases by $7,800
Total assets :
The meaning of total assets is all the assets, or items of value, a small business owns. Included in total assets is cash, accounts receivable (money owing to you), inventory, equipment, tools etc.
How do you calculate total assets?
Determine total assets by combining your liabilities with your equity. Because liabilities represent a negative value, the simplest method for finding total assets with this formula is to subtract the value of liabilities from the value of equity or assets. The resulting figure equals your total assets.
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