Question

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

   The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31:

   Apr. 13	Wrote off account of Dean Sheppard, $5,280.
   May 15	Received $2,640 as partial payment on the $7,020 account of Dan Pyle. Wrote off the remaining balance as uncollectible.
   July 27	Received $5,280 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt.
   Dec. 31	Wrote off the following accounts as uncollectible (record as one journal entry):
   	Paul Chapman $3,540 Duane DeRosa 2,640 Teresa Galloway 1,580 Ernie Klatt 2,220 Marty Richey 790
   Dec. 31	If necessary, record the year-end adjusting entry for the uncollectible accounts.

   For those amount boxes in which no entry is required, leave the box blank. If an entry is not required, select "No entry" from the dropdown box(es).

   a. Journalize the transactions under the direct write-off method.

   Apr. 13		fill in the blank 44afbf0cafa7fe8_2
   			fill in the blank 44afbf0cafa7fe8_4
   May 15		fill in the blank 44afbf0cafa7fe8_6	fill in the blank 44afbf0cafa7fe8_7
   		fill in the blank 44afbf0cafa7fe8_9	fill in the blank 44afbf0cafa7fe8_10
   		fill in the blank 44afbf0cafa7fe8_12	fill in the blank 44afbf0cafa7fe8_13
   July 27-reinstate		fill in the blank 44afbf0cafa7fe8_15
   			fill in the blank 44afbf0cafa7fe8_17
   July 27-collection		fill in the blank 44afbf0cafa7fe8_19
   			fill in the blank 44afbf0cafa7fe8_21
   Dec. 31-write-off		fill in the blank 44afbf0cafa7fe8_23	fill in the blank 44afbf0cafa7fe8_24
   		fill in the blank 44afbf0cafa7fe8_26	fill in the blank 44afbf0cafa7fe8_27
   		fill in the blank 44afbf0cafa7fe8_29	fill in the blank 44afbf0cafa7fe8_30
   		fill in the blank 44afbf0cafa7fe8_32	fill in the blank 44afbf0cafa7fe8_33
   		fill in the blank 44afbf0cafa7fe8_35	fill in the blank 44afbf0cafa7fe8_36
   		fill in the blank 44afbf0cafa7fe8_38	fill in the blank 44afbf0cafa7fe8_39
   Dec. 31-adjusting		fill in the blank 44afbf0cafa7fe8_41
   			fill in the blank 44afbf0cafa7fe8_43

   b. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 3% of credit sales are expected to be uncollectible. Shipway Company recorded $858,500 of credit sales during the year.

   Journalize the transactions under the allowance method.

   Apr. 13		fill in the blank 667e2f03c047ffe_2
   			fill in the blank 667e2f03c047ffe_4
   May 15		fill in the blank 667e2f03c047ffe_6	fill in the blank 667e2f03c047ffe_7
   		fill in the blank 667e2f03c047ffe_9	fill in the blank 667e2f03c047ffe_10
   		fill in the blank 667e2f03c047ffe_12	fill in the blank 667e2f03c047ffe_13
   July 27-reinstate		fill in the blank 667e2f03c047ffe_15
   			fill in the blank 667e2f03c047ffe_17
   July 27-collection		fill in the blank 667e2f03c047ffe_19
   			fill in the blank 667e2f03c047ffe_21
   Dec. 31-write-off		fill in the blank 667e2f03c047ffe_23	fill in the blank 667e2f03c047ffe_24
   		fill in the blank 667e2f03c047ffe_26	fill in the blank 667e2f03c047ffe_27
   		fill in the blank 667e2f03c047ffe_29	fill in the blank 667e2f03c047ffe_30
   		fill in the blank 667e2f03c047ffe_32	fill in the blank 667e2f03c047ffe_33
   		fill in the blank 667e2f03c047ffe_35	fill in the blank 667e2f03c047ffe_36
   		fill in the blank 667e2f03c047ffe_38	fill in the blank 667e2f03c047ffe_39
   Dec. 31-adjusting		fill in the blank 667e2f03c047ffe_41
   			fill in the blank 667e2f03c047ffe_43

   c. How much higher (lower) would Shipway Company's net income have been under the direct write-off method than under the allowance method?
     by $fill in the blank 333ee4f3b077fff

Answer 1

Q1. According to the Question,first we need to record the transactions under the direct write-off method:

Date	Particulars	Debit Amount($)	Credit Amount($)
April 13	Bad Debts Expense To Account Receivable(Dean)	5,280	5,280
May 15	Cash Bad Debts expense To Account Receivable(Dan )	2,640 4,380	7,020
July 27-reinstate	Account Receivable(Dean) To Bad Debts expense	5,280	5,280
July 27-collection	Cash   To Account Receivable(Dean)	5,280	5,280
Dec. 31-write-off	Bad Debts expense To Account Receivable(Paul)   To Account Receivable(Duane)   To Account Receivable(Teresa)   To Account Receivable(Ernie) To Account Receivable(Marty)	10,770	3,540 2,640 1,580 2,220 790
Dec. 31-adjusting	No entry

Q2. Next, we need to record the Transactions under he allowance method:

Date	Particulars	Debit Amount($)	Credit Amount($)
April 13	Allowance for Doubtful Accounts To Account Receivable(Dean)	5,280	5,280
May 15	Cash Allowance for Doubtful Accounts To Account Receivable(Dan )	2,640 4,380	7,020
July 27-reinstate	Account Receivable(Dean) To Allowance for Doubtful Accounts	5,280	5,280
July 27-collection	Cash   To Account Receivable(Dean)	5,280	5,280
Dec. 31-write-off	Allowance for Doubtful Accounts To Account Receivable(Paul)   To Account Receivable(Duane)   To Account Receivable(Teresa)   To Account Receivable(Ernie) To Account Receivable(Marty)	10,770	3,540 2,640 1,580 2,220 790
Dec. 31-adjusting	Bad Debts Expense($858,500*3%) To Allowance for Doubtful Accounts	25,755	25,755

Q3. Now, we need to determine the Shipway Company's net income under both methods:

Bad Debts expense under direct write off method	$15,150
Bad Debts expense under Allowance method	$25,755
Increase in Income-	$10,605