Chapter 8, Problem 8.18EX

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

1. A. Journalize the write-offs under the direct write-off method.
2. 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 $95,000 and the com­pany uses the analysis of receivables method.
3. C. How much higher (lower) would Seaforth International s net income have been under the allowance method than under the direct write-off method?