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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entries for bad debt expense under the direct write-off and allowance methods

Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31:

Customer Amount
Shawn Brooke $ 4,650
Eve Denton 5,180
Art Malloy 11,050
Cassie Yost 9,120
Total $30,000
  1. a. Journalize the write-offs under the direct write-off method.
  2. 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.
  3. c. How much higher (lower) would Casebolt Company’s net income have been under the direct write-off method than under the allowance method?

To determine

(a)

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.

To journalize: The write-offs under the direct write-off method.

Explanation

Journalize the write offs under the direct write off method.

Date Particulars Debit Credit
  Bad debt expense $30,000  
       Account receivable – Person SB   $4,650
       Account receivable – Person ED   $5,180
       Account recei...

(b)

To determine

To journalize: The write-offs under allowance method (Percentage of sales method).

(c)

To determine
Whether net income of Company RT is higher or lower under the direct-write off method than allowance method.

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