Entries for Bad Debt Expense Under the Direct Write-Off and Allowance MethodsSeaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31:CustomerAmountKim Abel$21,550 Lee Drake33,925 Jenny Green27,565 Mike Lamb19,460  Total$102,500  The company prepared the following aging schedule for its accounts receivable on December 31:Aging Class (Numberof Days Past Due)Receivables Balanceon December 31Estimated Percent ofUncollectible Accounts0-30 days $715,000 1% 31-60 days 310,000 2    61-90 days 102,000 15    91-120 days 76,000 30    More than 120 days 97,000 60        Total receivables $1,300,000    a.  Journalize the write-offs under the direct write-off method. If an amount box does not require an entry, leave it blank.                    b.  Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning credit balance of $95,000 on January 1 and the company uses the analysis of receivables method. For a compound transaction, if an amount box does not require an entry, leave it blank.Write-off                   Adjustment       c.  How much higher (lower) would Seaforth International's net income have been under the allowance method than under the direct write-off method?  $

Question
Asked Oct 4, 2019

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 $21,550  
Lee Drake 33,925  
Jenny Green 27,565  
Mike Lamb 19,460  
  Total $102,500  

 

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   $715,000   1%  
31-60 days   310,000   2     
61-90 days   102,000   15     
91-120 days   76,000   30     
More than 120 days   97,000   60     
    Total receivables   $1,300,000      

 

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

       
       
       
       
       

b.  Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning credit balance of $95,000 on January 1 and the company uses the analysis of receivables method. For a compound transaction, if an amount box does not require an entry, leave it blank.

Write-off      
       
       
       
       
Adjustment      
       

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

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Expert Answer

Step 1

a.

Journal entry for the write-offs under the direct write-off method:

 

Post Debit
Credit
Date
Accounts and explanation
(S)
ref.
(S)
Dec. 31 Bad debts expense
102500
Account receivable-Kim Abel
21550
Account receivable-Lee Drake
33925
Account receivable-Jenny Green
27565
19460
Account receivable-Mike Lamb
|(to write-off bad debts)
help_outline

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Post Debit Credit Date Accounts and explanation (S) ref. (S) Dec. 31 Bad debts expense 102500 Account receivable-Kim Abel 21550 Account receivable-Lee Drake 33925 Account receivable-Jenny Green 27565 19460 Account receivable-Mike Lamb |(to write-off bad debts)

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Step 2

b.

 

Journal entry for the write-offs under allowance method:

 

Adjusting entry f...

Post
Debit
Credit
Accounts and explanation
Date
ref.
(S)
102500
(S)
Dec. 31 Allowance for doubtful accounts
Account receivable-Kim Abel
21550
Account receivable -Lee Drake
33925
Account receivable-Jenny Green
Account receivable -Mike Lamb
|(to write-off bad debts)
27565
19460
Post
Credit
Debit
Date
Accounts and explanation
ref.
(S)
(S)
Dec. 31 Bad debts expense
117150
Allowance for doubtful accounts
117150
adjust allowance for doubtful
(to
accounts)
help_outline

Image Transcriptionclose

Post Debit Credit Accounts and explanation Date ref. (S) 102500 (S) Dec. 31 Allowance for doubtful accounts Account receivable-Kim Abel 21550 Account receivable -Lee Drake 33925 Account receivable-Jenny Green Account receivable -Mike Lamb |(to write-off bad debts) 27565 19460 Post Credit Debit Date Accounts and explanation ref. (S) (S) Dec. 31 Bad debts expense 117150 Allowance for doubtful accounts 117150 adjust allowance for doubtful (to accounts)

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