Question

Morry Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31: Customer Amount J. Jackson $10,000 L. Stanton 9,500 C. Barton 13,100 S. Fenton 2,400 Total $35,000 Required: (a) Journalize the write-offs for the current year under the direct write-off method.* (b) Journalize the write-offs for the current year under the allowance method. Also, journalize the adjusting entry for uncollectible receivables assuming the company made $2,400,000 of credit sales during the year and the industry average for uncollectible receivables is 1.5% of credit sales.* (c) How much higher or lower would Morry Company’s net income have been under the direct write-off method than under the allowance method?

Answer 1

No.	Account Titles and Explanation	Debit	Credit
(a)	Bad debts expense	35000
	Accounts receivable		35000
	(To record write-off of uncollectible accounts)
(b)	Allowance for uncollectible accounts	35000
	Accounts receivable		35000
	(To record write-off of uncollectible accounts)
	Bad debts expense (1.5% x $2400000)	36000
	Allowance for uncollectible accounts		36000
	(To record bad debts expense)

(c) Morry Company's net income would have been higher by $1000 under the direct write-off method than under the allowance method since the bad debts expense is lower under the write-off method than under the allowance method.