Answer:
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
Explanation:
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 Uncollectible Accounts $7,800
Net income (before taxes) in 2021 decreases by $7,800 and total assets in 2021 decreases by $7,800
