Question

E8-17 (Supplement 8A) Recording Write-Offs and Reporting Accounts Receivable Using the Direct Write-Off Method [LO 8-S1] Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician who installs wiring in new homes. Because the company’s financial statements are prepared only for tax purposes, Jon uses the direct write-off method. During 2015, its first year of operations, Trevorson Electronics sold $30,200 of services on account. The company collected $26,100 of these receivables during the year, and Jon believed that the remaining $4,100 was fully collectible. In 2016, Jon discovered that none of the $4,100 would be collected, so he wrote off the entire amount. To make matters worse, Jon sold only $5,150 of services during the year.

1. Prepare journal entries to record the transactions in 2015 and 2016. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1. Record the service revenue of $30,200 sold on account in 2015.

2. Record the collection of $26,100 from outstanding customer accounts in 2015.

3.Record the write-off of outstanding customer balances of $4,100 determined to be uncollectible in 2016.

4. Record the service revenue of $5,150 sold on account in 2016.

2. 2-a. Using only the information provided (ignore other operating expenses), prepare comparative income statements for 2015 and 2016. 2-b. Was 2015 really as profitable as indicated by its income statement? Yes No 2-c. Was 2016 quite as bad as indicated by its income statement? Yes No

2-c. Was 2016 quite as bad as indicated by its income statement? Yes No

Answer 1

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1. Journal Entries
Event	Account	Debit	Credit
1.1	Accounts Receivable	30200
2015	Service Revenue		30200
	(The service revenue of $30,200 sold on account in 2015)
1.2	Cash	26100
2015	Accounts Receivable		26100
	(Being Cash Received from Receivable)
1.3	Bad Debt Expense	4100
2016	Accounts Receivable		4100
	(Being write-off recorded)
1.4	Accounts Receivable	5150
2016	Service Revenue		5150
	(The service revenue of $5150 sold on account in 2016)
Part 2.2a	Comparative Income Statement
		2015	2016
	Service Revenue	30200	5150
	Less Bad Debt Expense	0	4100
	Net Income	30200	1050
Part 2.2b	No, Since bad debt expense which were related to 2015 are not reflecting in 2015 and hence income is on higher side by $4100 due to direct write off method
Part 2.2c	No, Since bad debt expense which were related to 2015 are reflecting in 2016 and hence income is on lower side by $4100 due to direct write off method