Question

Seaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31: Customer Amount Kim Abel $24,500 Lee Drake 31,000 Jenny Green 29,700 Mike Lamb 17,900 Total $103,100 The company prepared the following aging schedule for its accounts receivable on December 31: Aging Class (Number of Days Past Due) Receivables Balance on December 31 Estimated Percent of Uncollectible Accounts 0–30 days $740,000 1% 31–60 days 300,000 2 61–90 days 110,000 15 91–120 days 70,000 30 More than 120 days 94,000 60 Total receivables $1,314,000 A. Journalize the write-offs under the direct write-off method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles. B. Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning balance of $89,100 and the company uses the analysis of receivables method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles. C. How much higher (lower) would Seaforth International’s net income have been under the allowance method than under the direct write-off method?

Answer 1

a)	Date	Account title and explanation				Debit	Credit
		Bad debts expense				103,100
		Account receivable -kim Abel					24,500
		Account receivable -Lee Drake					31,000
		Account receivable -Jenny Green					29,700
		Account receivable -Mike Lamb					17,900
	Estimating bad debts
b)	Aging class		Receivable	Estimated	Estimated
			balance	%	bad debts
			(a)	(b)	c=A*b
	0--30		740,000	1%	7400
	31--60 days		300,000	2%	6000
	61--90 days		110,000	15%	16500
	91---120 days		70,000	30%	21000
	more than 120 days		94,000	60%	56400
	total estimated bad debts				107300
	write off	Allowance for bad debts				103,100
		Account receivable -kim Abel					24,500
		Account receivable -Lee Drake					31,000
		Account receivable -Jenny Green					29,700
		Account receivable -Mike Lamb					17,900
	adjustment	Bad debts expense				121300
		Allowance for bad debts					121300
		(the allowance account had 891000 credit and amount written off
		is $103,100,thus leaving a debit balance of $14,000
		adjustment therefore required is 14000+107300=					121300
c)		lower	18,200