Chapter 5, Problem 5.19E

Compare the percentage of receivables method and the percentage-of-credit-sales method (LO5–9)

Suzuki Supply reports the following amounts at the end of 2018 (before adjustment).

Credit Sales for 2018	$260,000
Accounts Receivable. December 31,2018	55,000
Allowance for Uncollectible Accounts. December 31,2018	1,100 (credit)

Required:

  1.    Record the adjustment for uncollectible accounts using the percentage-of-receivables method. Suzuki estimates 12% of receivables will not be collected.

  2.    Record the adjustment for uncollectible accounts using the percentage-of-credit-sales method. Suzuki estimates 3% of credit sales will not be collected.

  3.    Calculate the effect on net income (before taxes) and total assets in 2018 for each method.