Question

Entries for Bad Debt Expense Under the Direct Write-Off and Allowance Method The following selected transactions were taken from the records of Rustic Tables Company for the year ending December 31: June 8. Wrote off account of Kathy Quantel, $6,220. Aug. 14. Received $4,420 as partial payment on the $11,130 account of Rosalie Oakes. Wrote off the remaining balance as uncollectible. Oct. 16. Received the $6,220 from Kathy Quantel, which had been written off on June 8. Reinstated the account and recorded the cash receipt. Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry): Wade Dolan $1,800 Greg Gagne 1,120 Amber Kisko 4,290 Shannon Poole 2,490 Niki Spence 680 Dec. 31 If necessary, record the year-end adjusting entry for the uncollectible accounts. The company prepared the following aging schedule for its accounts receivable: Aging Class (Number of Days Past Due) Receivables Balance on December 31 Estimated Percent of Uncollectible Accounts 0-30 days $299,000 3 % 31-60 days 112,000 7 61-90 days 35,000 20 91-120 days 13,000 50 More than 120 days 18,000 75 Total receivables $477,000 For those amount boxes in which no entry is required, leave the box blank. If an account is not required, select "No entry" from the dropdown box(es). a. Journalize the transactions under the direct write-off method. June 8 Bad Debt Expense Accounts Receivable-Kathy Quantel Aug. 14 Cash Bad Debt Expense Accounts Receivable-Rosalie Oakes Oct. 16-reinstate Accounts Receivable-Kathy Quantel Bad Debt Expense Oct. 16-collection Cash Accounts Receivable-Kathy Quantel Dec. 31-write-off Bad Debt Expense Accounts Receivable-Wade Dolan Accounts Receivable-Greg Gagne Accounts Receivable-Amber Kisko Accounts Receivable-Shannon Poole Accounts Receivable-Niki Spence Dec. 31-adjusting No entry No entry b. Journalize the transactions under the allowance method, assuming that the allowance account had a beginning balance of $18,660 at the beginning of the year and the company uses the analysis of receivables method. June 8 Allowance for Doubtful Accounts Accounts Receivable-Kathy Quantel Aug. 14 Cash Allowance for Doubtful Accounts Accounts Receivable-Rosalie Oakes Oct. 16-reinstate Accounts Receivable-Kathy Quantel Allowance for Doubtful Accounts Oct. 16-collection Cash Accounts Receivable-Kathy Quantel Dec. 31-write-off Allowance for Doubtful Accounts Accounts Receivable-Wade Dolan Accounts Receivable-Greg Gagne Accounts Receivable-Amber Kisko Accounts Receivable-Shannon Poole Accounts Receivable-Niki Spence Dec. 31-adjusting Bad Debt Expense Allowance for Doubtful Accounts c. How much higher (lower) would Rustic Tables’ net income have been under the direct write-off method than under the allowance method? by

Answer 1

a.	Journal entries (Direct write-off method):
	Date	Account titles					Debit	Credit
	June 8.	Bad Debt Expense					6220
		Accounts Receivable-Kathy Quantel						6220
		(Wriien off)
	Aug 14.	Cash					4420
		Bad Debt Expense			(plug)		6710
		Accounts Receivable-Rosalie Oakes						11130
		(Collected and balance written off)
	Oct 16.	Accounts Receivable-Kathy Quantel					6220
		Bad Debt Expense						6220
		(Reinstated the accounts previously written off)
		Cash					6220
		Accounts Receivable-Kathy Quantel						6220
		(Cash collected)
	Dec 31.	Bad Debt Expense					10380
		Accounts Receivable-Wade Dolan						1800
		Accounts Receivable-Greg Gagne						1120
		Accounts Receivable-Amber Kisko						4290
		Accounts Receivable-Shannon Poole						2490
		Accounts Receivable-Niki Spence						680
		(Wriien off)
	Dec 31.	No entry	(No adjusting entry required)
b.	Journal entries (Allowance method):
	Date	Account titles					Debit	Credit
	June 8.	Allowance for Doubtful Accounts					6220
		Accounts Receivable-Kathy Quantel						6220
		(Wriien off)
	Aug 14.	Cash					4420
		Allowance for Doubtful Accounts				(plug)	6710
		Accounts Receivable-Rosalie Oakes						11130
		(Collected and balance written off)
	Oct 16.	Accounts Receivable-Kathy Quantel					6220
		Allowance for Doubtful Accounts						6220
		(Reinstated the accounts previously written off)
		Cash					6220
		Accounts Receivable-Kathy Quantel						6220
		(Cash collected)
	Dec 31.	Allowance for Doubtful Accounts					10380
		Accounts Receivable-Wade Dolan						1800
		Accounts Receivable-Greg Gagne						1120
		Accounts Receivable-Amber Kisko						4290
		Accounts Receivable-Shannon Poole						2490
		Accounts Receivable-Niki Spence						680
		(Wriien off)
	Dec 31.	Bad Debt Expense				(Note:1)	42240
		Allowance for Doubtful Accounts						42240
		(Bad debt expense recorded)