At December 31, 2009, Vizarro Company reports the following results for its cale

Question

At December 31, 2009, Vizarro Company reports the following results for 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 . . . . . . . . . . . . . . . . . $1,127,500 debit
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 following items.
Required
1. Prepare the adjusting entry for Vizarro Co. to recognize bad debts 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 accounts receivable are uncollectible.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December31,
2009, balance sheet given the facts in part 1a.
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts 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 as un-
collectible. This method is acceptable only when the amount of bad
debts expense is immaterial. Under the allowance method, bad
debts expense is recorded with an adjustment at the end of each
accounting period that debits the Bad Debts Expense account and
credits the Allowance for Doubtful Accounts. The uncollectible
accounts are later written off with a debit to the Allowance for
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 bad debts
expense and credit sales or (2) the balance sheet relation between
accounts receivable and the allowance for doubtful accounts. The
first approach emphasizes the matching principle using the income
statement. The second approach emphasizes realizable value of
accounts receivable using the balance sheet.

I

Explanation / Answer

a Bad Debt Expense 55,800.00 Allowance for Doubtful Accounts 55,800.00 (1.5% of 3,720,000=55,800) b Bad Debt Expense 25,567.00 Allowance for Doubtful Accounts 25,567.00 ( 1% of 2,556,700 = 25,567 ) c Bad Debt Expense 62,855.00 Allowance for Doubtful Accounts 62,855.00 ( 3% of 1,127,500 + 29,030 ) The Balance Sheet would appear as follows a Accounts Receivable 1,127,500.00 Less: Bad Debt Expense (55,800.00) Accounts Receivable 1,071,700.00 c Accounts Receivable 1,127,500.00 Less: Bad Debt Expense (62,855.00) Accounts Receivable 1,064,645.00

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