Question

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		$24,400
Lee Drake		34,000
Jenny Green		29,800
Mike Lamb		17,800
	Total	$106,000

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		$735,000		1	%
31-60 days		300,000		2
61-90 days		115,000		15
91-120 days		75,000		30
More than 120 days		95,000		60
Total receivables		$1,320,000

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

		fill in the blank f29c2df4dfcd027_2	fill in the blank f29c2df4dfcd027_3
		fill in the blank f29c2df4dfcd027_5	fill in the blank f29c2df4dfcd027_6
		fill in the blank f29c2df4dfcd027_8	fill in the blank f29c2df4dfcd027_9
		fill in the blank f29c2df4dfcd027_11	fill in the blank f29c2df4dfcd027_12
		fill in the blank f29c2df4dfcd027_14	fill in the blank f29c2df4dfcd027_15

b. Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning balance of $92,000 and the company uses the analysis of receivables method. If an amount box does not require an entry, leave it blank.

		fill in the blank 6655c8fbb050fc3_2	fill in the blank 6655c8fbb050fc3_3
		fill in the blank 6655c8fbb050fc3_5	fill in the blank 6655c8fbb050fc3_6
		fill in the blank 6655c8fbb050fc3_8	fill in the blank 6655c8fbb050fc3_9
		fill in the blank 6655c8fbb050fc3_11	fill in the blank 6655c8fbb050fc3_12
		fill in the blank 6655c8fbb050fc3_14	fill in the blank 6655c8fbb050fc3_15
		fill in the blank 6655c8fbb050fc3_17	fill in the blank 6655c8fbb050fc3_18
		fill in the blank 6655c8fbb050fc3_20	fill in the blank 6655c8fbb050fc3_21

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

Answer 1

a. Journal entry for the direct write off the method is:

S. No.	Particular	Debit Amount	Credit Amount
a.	Bad Debts Account	106,000
	To Kim Abel		24,400
	To Lee Drake		34,000
	To Jenny Green		29,800
	To Mike Lamb		17,800
	(Being the amount of bad debts recorded under account receivables)

b. Journal entry for the adjusting entry is:

S. No.	Particular	Debit Amount	Credit Amount
a.	Bad Debts Account	106,000
	To Kim Abel		24,400
	To Lee Drake		34,000
	To Jenny Green		29,800
	To Mike Lamb		17,800
	(Being the amount of bad debts recorded under account receivables)
b.	Bad debts account debited	124,100
	To allowances for doubtful account		124,100
	(Being uncollected account estimated)

Working Note:

The calculation for allowance is:

Number of days	Per cent	Amount($)
0-30 days	1%	7,350
31-60 days	2%	6,000
61-90 days	15%	17,250
91-120 days	30%	22,500
More than 120 days	60%	57,000
		110,100

Note: The amount is calculated by using the per cent and the receivable balance given in the above table.

Uncollectible amoun t=(Total of uncollectible amount - Opening balance)+110,000

=($106,000-$92,000)+$14,000

=$124,000

c. the net income is lower on the basis of allowances method which s $18,100. The bad debts are higher when the organization using the allowances method.

Working Note:

The calculation for income:

= Uncollectible amount - total uncollectable amount for the year

=$124,100-$106,000

=$18,100