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The following selected transactions were taken from the records of Rustic Tables Company for the year ending December 31: June 8. Wrote off account of Kathy Quantel, $8,440. Aug. 14. Received $3,000 as partial payment on the $12,500 account of Rosalie Oakes. Wrote off the remaining balance as uncollectible. Oct. 16. Received the $8,440 from Kathy Quantel, whose account had been written off on June 8. Reinstated the account and recorded the cash receipt. Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry): 31. If necessary, record the year-end adjusting entry for uncollectible accounts. a. Journalize the transactions under the direct write-off method. b. Journalize the transactions under the allowance method, assuming that the allowance account had a beginning credit balance of $36,000 on January 1 and the company uses the analysis of receivables method. Rustic Tables Company prepared the following aging schedule for its accounts receivable: c. How much higher (lower) would Rustic Tables’ net income have been under the direct write-off method than under the allowance method?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 9, Problem 14E
Textbook Problem
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The following selected transactions were taken from the records of Rustic Tables Company for the year ending December 31:

June 8.    Wrote off account of Kathy Quantel, $8,440.

Aug. 14. Received $3,000 as partial payment on the $12,500 account of Rosalie Oakes. Wrote off the remaining balance as uncollectible.
Oct. 16. Received the $8,440 from Kathy Quantel, whose account had been written off on June 8. Reinstated the account and recorded the cash receipt.
Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry):

Chapter 9, Problem 14E, The following selected transactions were taken from the records of Rustic Tables Company for the , example  1

31.    If necessary, record the year-end adjusting entry for uncollectible accounts.

  1. a. Journalize the transactions under the direct write-off method.
  2. b. Journalize the transactions under the allowance method, assuming that the allowance account had a beginning credit balance of $36,000 on January 1 and the company uses the analysis of receivables method. Rustic Tables Company prepared the following aging schedule for its accounts receivable:

Chapter 9, Problem 14E, The following selected transactions were taken from the records of Rustic Tables Company for the , example  2

  1. c. Chapter 9, Problem 14E, The following selected transactions were taken from the records of Rustic Tables Company for the , example  3How much higher (lower) would Rustic Tables’ net income have been under the direct write-off method than under the allowance method?

(a)

To determine

Journalize the transactions under direct write off method.

Explanation of Solution

Bad debt expense: Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, the estimated uncollectible accounts receivable are known as bad debt expense.

Direct write-off method: This method does not make allowance or estimation for uncollectible accounts, instead this method directly write-off the actual uncollectible accounts by debiting bad debt expense and by crediting accounts receivable. Under this method, accounts would be written off only when the receivables from a customer remain uncollectible. 

Journalize the transactions of Company S under direct write off method.

DateParticularsDebitCredit
June 8Bad debt expense$8,440 
 Account receivable – Person KQ $8,440
 (To recordthe write-off ofuncollectible account receivable )  
 
August 14Cash$3,000 
Bad debt expense$9,500 
 Account receivable – Person RO $12,500
 (To record thecash collection and write-off ofremaining uncollectible account receivable )  
 
October 16Accounts receivable – Person KQ$8,440 
      Bad debt expense $8,440
 (The reinstatethe account of Person KQ)  
 
October 16Cash$8,440 
      Accounts receivable – Person KQ $8,440
 (To record collection of cash on account)  
 
December 31Bad debt expense$24,995 
Account receivable – Person WD  $4,600
 Account receivable – Person GG $3,600
 Account receivable – Person AK $7,150
 Account receivable – Person SP $2,975
 Account receivable – Person NS  $6,630
 (To record the write-off ofuncollectible account receivable )  
 
December 31No entry is required  

Table (1)

For June 8:

To record this write-off of uncollectible receivables under direct write-off method, bad debt expense must be recognized as well as increased, and accounts receivable must be decreased by $8,440...

(b)

To determine

Journalize: The transactions under allowance method (Aging analysis method).

(c)

To determine

Determine whether net income of Company RT is higher or lower under the direct-write off method than allowance method.

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