close solutoin list

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. b. Journalize the write-offs and the year-end ad 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. c. How much higher (lower) would Seaforth International’s net income have been under the allowance method than under the direct write-off method?

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 9, Problem 9.18EX
Textbook Problem

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 ad 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.
  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?

Expert Solution

(a)

To determine

Accounts receivable

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

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 of Solution

Journalize the write offs under the direct write off method.

Date Particulars Debit Credit
  Bad debt expense $102,500  
       Account receivable – Person KA   $21,550
       Account receivable – Person LD   $33,925
       Account rece...
Expert Solution

(b)

To determine

Allowance method:

It is a method for accounting bad debt expense, where amount of uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Two methods to estimate uncollectible accounts under allowance method are:

  • Percentage of sales method, and
  • Analysis of receivables method.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

It is a method of estimating the bad debts (expected loss on extending credit), by multiplying the expected percentage of uncollectible with the total amount of net credit sale (or total sales) for a specific period. Under percentage of sales method, estimated bad debts would be treated as a bad debt expense of the particular period.

Analysis of receivables method:

A method of determining the estimated uncollectible receivables based on the age of individual accounts receivable is known as analysis of receivables method. This method is otherwise known as aging of receivables method. Under analysis of receivables method, estimated bad debts would be treated as the desired adjusted balance for allowance for doubtful accounts.

To journalize: The write-offs under allowance method (Analysis of receivables method).

Expert Solution

(c)

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

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 9 Solutions

Accounting
Show all chapter solutions
Ch. 9 - Direct write-off method Journalize the following...Ch. 9 - Direct write-off method Journalize the following...Ch. 9 - Allowance method Journalize the following...Ch. 9 - Allowance method Journalize the following...Ch. 9 - Percent of sales method At the end of the current...Ch. 9 - Percent of sales method At the end of the current...Ch. 9 - Analysis of receivables method At the end of the...Ch. 9 - Analysis of receivables method At the end of the...Ch. 9 - Note receivable Lundquist Company received a...Ch. 9 - Note receivable Prefix Supply Company received a...Ch. 9 - Accounts receivable turnover and days sales in...Ch. 9 - Accounts receivable turnover and days sales in...Ch. 9 - Classifications of receivables Boeing is one of...Ch. 9 - Nature of uncollectible accounts MGM Resorts...Ch. 9 - Entries for uncollectible accounts, using direct...Ch. 9 - Entries for uncollectible receivables, using...Ch. 9 - Entries to write off accounts receivable Quantum...Ch. 9 - Providing for doubtful accounts At the end of the...Ch. 9 - Number of days past due Toot Auto Supply...Ch. 9 - Aging of receivables schedule The accounts...Ch. 9 - Estimating allowance for doubtful accounts...Ch. 9 - Adjustment for uncollectible account Using data in...Ch. 9 - Estimating doubtful accounts Performance Bike Co....Ch. 9 - Entry for uncollectible accounts Using the data in...Ch. 9 - Entries for bad debt expense under the direct...Ch. 9 - Entries for bad debt expense under the direct...Ch. 9 - Effect of doubtful accounts on net income During...Ch. 9 - Effect of doubtful accounts on net income Using...Ch. 9 - Entries for bad debt expense under the direct...Ch. 9 - Entries for bad debt expense under the direct...Ch. 9 - Determine due date and interest on notes Determine...Ch. 9 - Entries for notes receivable Spring Designs ...Ch. 9 - Entries for notes receivable The series of five...Ch. 9 - Entries for notes receivable, including year-end...Ch. 9 - Entries for receipt and dishonor of note...Ch. 9 - Entries for receipt and dishonor of notes...Ch. 9 - Receivables on the balance sheet List any errors...Ch. 9 - Accounts receivable turnover and days sales in...Ch. 9 - Accounts receivable turnover and days sales in...Ch. 9 - Accounts receivable turnover and days sales in...Ch. 9 - Accounts receivable turnover Use the data in...Ch. 9 - Entries related to uncollectible accounts The...Ch. 9 - Aging of receivables; estimating allowance for...Ch. 9 - Compare two methods of accounting for...Ch. 9 - Details of notes receivable and related entries...Ch. 9 - Notes receivable entries The following data relate...Ch. 9 - Sales and notes receivable transactions The...Ch. 9 - Entries related to uncollectible accounts The...Ch. 9 - Aging of receivables; estimating allowance for...Ch. 9 - Compare two methods of accounting for...Ch. 9 - Details of notes receivable and related entries...Ch. 9 - Notes receivable entries The following data relate...Ch. 9 - Sales and notes receivable transactions The...Ch. 9 - Ethics in Action Bud Lighting Co. is a retailer of...Ch. 9 - Ethics in Action Bev Wynn, vice p resident of...Ch. 9 - Communication On January 1, Xtreme Co. began...Ch. 9 - Estimate uncollectible accounts For several years,...Ch. 9 - Accounts receivable turnover and days sales in...Ch. 9 - Accounts receivable turnover and days sales in...Ch. 9 - Accounts receivable turnover and days sales in...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
Identify and describe the three steps in the delegation process.

Foundations of Business (MindTap Course List)

Explain the purpose of the work sheet.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

EVA For 2014, Everyday Electronics reported 22.5 million of sales and 18 million of operating costs (including ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)