Textbook Problem

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 under the direct write-off method.

b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $5,250,000 of credit sales during the year. Based on past history and industry averages, ¾% of credit sales are expected to be uncollectible.

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