The following financial information pertains to Sleepy Company:

Required
a. Prepare all the necessary journal entries for 2012 sales, collections, and write-offs (using the direct write-off method).
b. Using the allowance method, prepare 2012 journal entries to record write-offs and to estimate bad debt expense assuming bad debt expense is estimated on a (i) percentage of net credit sales approach (2%) and (ii) percentage of accounts receivable approach (5%).
c. What is the net realizable value of accounts receivable in parts b(i) and b(ii)?
d. Explain the rationale for each of the approaches in part b.

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Accounts receivable, 12/31/11 Allowance for bad debts, 12/31/11 Net credit sales, 2012 Collections on credit sales during 2012 Accounts receivable written off in 2012 S 275,000 8,400 1,980,000 1,730,000 6,500