OBJ. 5 EX 8-13 methods Entries for bad debt expense under the direct write-off a

Question

OBJ. 5 EX 8-13 methods Entries for bad debt expense under the direct write-off and allowance The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31, 2016: Apr. 13. Wrote off account of Dean Sheppard, $8,450. May 15. Received $500 as partial payment on the $7,100 account of Dan Pyle. Wrote off the remaining balance as uncollectible. July 27. Received $8,450 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry): Paul Chapman Duane DeRosa Teresa Galloway Ernie Klatt Marty Richey $2,225 3,550 4,770 1,275 1,690 31. If necessary, record the yearend adjusting entry for uncollectible accounts. a. Journalize the transactions for 2016 under the direct write-off method. b. Journalize the transactions for 2016 under the allowance method. Shipway Com- pany uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, ¾% of credit sales are ex- pected to be uncollectible. Shipway Company recorded $3,778,000 of credit sales during 2016. C. -How much higher (lower) would Shipway Company's net income have been under the direct write-off method than under the allowance method?

Explanation / Answer

Answer 1. Direct Method Journal Entry Date Particulars Dr. Amt. Cr. Amt. 13-Apr Bad Debt Expenses                            Dr.      8,450.00    To Accounts Receivable      8,450.00 (Record the account receivable written off) 15-May Cash                                                          Dr.          500.00 Bad Debt Expenses                            Dr.      6,600.00    To Accounts Receivable      7,100.00 (Record the partial payment received and balance w/o of Dan Pyle) 27-Jul Accounts Receivable                         Dr.      8,450.00    To Bad Debt Expenses      8,450.00 (Record reinstated account of Dean Sheppard W/o earlier) 27-Jul Cash                                                          Dr.      8,450.00    To Accounts Receivable      8,450.00 (Record the amount collected from Dean) 31-Dec Bad Debt Expenses                            Dr.    13,510.00    To Accounts Receivable    13,510.00 (Record the account receivable written off) 31-Dec No Entry Answer 2. Allowance Method Journal Entry Date Particulars Dr. Amt. Cr. Amt. 8-Jun Allowance for Doubtful Accounts Dr.      8,450.00    To Accounts Receivable      8,450.00 (Record the account receivable written off) 14-Aug Cash                                                            Dr.          500.00 Allowance for Doubtful Accounts Dr.      6,600.00    To Accounts Receivable      7,100.00 (Record the partial payment received and balance w/o of Dan Pyle) 16-Oct Accounts Receivable                           Dr.      8,450.00    To Allowance for Doubtful Accounts      8,450.00 (Record reinstated account of Dean Sheppard W/o earlier) 16-Oct Cash                                                          Dr.      8,450.00    To Accounts Receivable      8,450.00 (Record the amount collected from Dean) 31-Dec Accounts Receivable                           Dr.    13,510.00    To Allowance for Doubtful Accounts    13,510.00 (Record the account receivable written off) 31-Dec Bad Debt Expenses                               Dr.    28,335.00    To Allowance for Doubtful Accounts    28,335.00 (Record the Bad Debt Expenses) Answer c. Bad Debt Expenses - Direct Method    20,110.00 Bad Debt Expenses - Allowance Method    28,335.00 Net Profit - Higher in Direct Method      8,225.00

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