Question

1. Entries for Bad Debt Expense Under the Direct Write-Off and Allowance Methods

   Seaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31:
   

   Customer		Amount
   Kim Abel		$21,550
   Lee Drake		33,925
   Jenny Green		27,565
   Mike Lamb		19,460
   	Total	$102,500

   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		$715,000		1%
   31-60 days		310,000		2
   61-90 days		102,000		15
   91-120 days		76,000		30
   More than 120 days		97,000		60
   Total receivables		$1,300,000

   a. Journalize the write-offs under the direct write-off method. If an amount box does not require an entry, leave it blank.

   b. Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning credit balance of $95,000 on January 1 and the company uses the analysis of receivables method. For a compound transaction, if an amount box does not require an entry, leave it blank.

   Write-off
   Adjustment

   c. How much higher (lower) would Seaforth International's net income have been under the allowance method than under the direct write-off method?
     $

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Answer 1

Estimated uncollectible amount = (715000*1%+310000*2%+102000*15%+76000*30%+97000*60%) = 109650

a) Journal entry

Date	account and explanation	debit	credit
	bad debt expense	102500
	Allowance for doubtful accounts		102500
	(To record write off)

b) Journal entry

Date	account and explanation	debit	credit
	Allowance for doubtful accounts	102500
	Account receivable		102500
	(To record write off)
	Bad debt expense (109650+7500)	117150
	Allowance for doubtful accounts		117150
	(To record bad debt expense)

c) Net income will be lower under allowance method by (117150-102500) = $14650