Question

Entries for Bad Debt Expense under the Direct Write-Off and Allowance Method

Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31:

Customer		Amount
Shawn Brooke		$19,600
Eve Denton		18,300
Art Malloy		25,100
Cassie Yost		4,700
	Total	67,700

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

	Bad Debt Expense
	Accounts Receivable-Shawn Brooke
	Accounts Receivable-Eve Denton
	Accounts Receivable-Art Malloy
	Accounts Receivable-Cassie Yost

b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $5,400,000 of credit sales during the year. Based on past history and industry averages, 1-1/2% of credit sales are expected to be uncollectible. If an amount box does not require an entry, leave it blank.

Write-off	Allowance for Doubtful Accounts
	Accounts Receivable-Shawn Brooke
	Accounts Receivable-Eve Denton
	Accounts Receivable-Art Malloy
	Accounts Receivable-Cassie Yost
Adjustment	Bad Debt Expense
	Allowance for Doubtful Accounts

c. How much higher (lower) would Casebolt Company’s net income have been under the direct write-off method than under the allowance method?
Higher by $

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Compare the bad debt expense account balance for both methods.

Learning Objective 5.

Answer 1

	Date	Account Titles and Explanation	Debit	Credit
a		Bad Debt Expenses	$67,700
		Accounts Receivable - Shawn Brooke		$19,600
		Accounts Receivable - Eve Denton		$18,300
		Accounts Receivable - Art Malloy		$25,100
		Accounts Receivable - Cassie Yost		$4,700
b		Allowance for Doubtful Accounts	$67,700
		Accounts Receivable - Shawn Brooke		$19,600
		Accounts Receivable - Eve Denton		$18,300
		Accounts Receivable - Art Malloy		$25,100
		Accounts Receivable - Cassie Yost		$4,700
		Bad Debts Expenses	$81,000
		Allowance for Doubtful Accounts		$81,000		$13,300
c	Net income would have been $13,300 higher in the year under the direct write-off method,
	because bad debt expense would have been $13,300 higher under the allowance method
	($81,000 expense under the allowance method vs. $67,700 expense under the direct write-off method).