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

ID: 2554613 • Letter: E

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:

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

b. Journalize the write-offs for under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $3,920,000 of credit sales during the year. Based on past history and industry averages, 1 1/4% of credit sales are expected to be uncollectible. For a compound transaction, if an amount box does not require an entry, leave it blank.

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

Customer Amount Shawn Brooke $11,700 Eve Denton 10,900 Art Malloy 15,100 Cassie Yost 2,800 Total 40,500

Explanation / Answer

Date Account titles & Explanations Debit Credit a) Bad debts expens 40,500 Accounts receivable - Shawn 11,700 Accounts receivable -Eve Denton 10,900 Accounts receivable-Art Malloy 15,100 Accounts receivable-Cassie Yost 2,800 b) Allowance for uncollectible accounts 40,500 Accounts receivable - Shawn 11,700 Accounts receivable -Eve Denton 10,900 Accounts receivable-Art Malloy 15,100 Accounts receivable-Cassie Yost 2,800 Bad debts expense 49000 Allowance for uncollectible accounts 49,000 (3,920,000*1 1/4 %) c) net income will be higher under direct write off method by $8,500 (49000-40500)