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At December 31, 2009, Vizarro Company reports the following resultsfor its calendar-year.
Problem 9-3A
Estimating and reporting bad
debts
P1 P2
Cash sales . . . . . . . . . $2,184,700
Credit sales . . . . . . . . 3,720,000
Accounts receivable . . . . . . . . . . . . . . . . . $1,127,500debit
Allowance for doubtful accounts . . . . . . . . 29,030 debit
Check Bad Debts Expense:
(1a) $55,800, (1c) $62,855
In addition, its unadjusted trial balance includes the followingitems.
Required
1. Prepare the adjusting entry for Vizarro Co. to recognize baddebts under each of the following inde-
pendent assumptions.
a. Bad debts are estimated to be 1.5% of credit sales.
b. Bad debts are estimated to be 1% of total sales.
c. An aging analysis estimates that 3% of year-end accountsreceivable are uncollectible.
2. Show how Accounts Receivable and the Allowance for DoubtfulAccounts appear on its December31,
2009, balance sheet given the facts in part 1a.
3. Show how Accounts Receivable and the Allowance for DoubtfulAccounts appear on its December31,
2009, balance sheet given the facts in part 1c.

P1 - Apply the direct write-off and allowance methods to ac-
count for accounts receivable. The direct write-off method
charges Bad Debts Expense when accounts are written off asun-
collectible. This method is acceptable only when the amount ofbad
debts expense is immaterial. Under the allowance method, bad
debts expense is recorded with an adjustment at the end ofeach
accounting period that debits the Bad Debts Expense accountand
credits the Allowance for Doubtful Accounts. Theuncollectible
accounts are later written off with a debit to the Allowancefor
Doubtful Accounts.
P2 - Estimate uncollectibles using methods based on sales and
accounts receivable. Uncollectibles are estimated by focus-
ing on either (1) the income statement relation between baddebts
expense and credit sales or (2) the balance sheet relationbetween
accounts receivable and the allowance for doubtful accounts.The
first approach emphasizes the matching principle using theincome
statement. The second approach emphasizes realizable value of
accounts receivable using the balance sheet.

I

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Trinidad Tremblay
Trinidad TremblayLv2
28 Sep 2019

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