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23 August, 15:28

Suzuki Supply reports the following amounts at the end of 2021 (before adjustment). Credit Sales for 2021 $ 260,000 Accounts Receivable, December 31, 2021 55,000 Allowance for Uncollectible Accounts, December 31, 2021 1,100 (Credit) 3. Calculate the effect on net income (before taxes) and total assets in 2021 for each method. Suzuki estimates 12% of receivables and 3% of credit sales respectively will not be collected.

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  1. 23 August, 15:47
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    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
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