Question

Entries for Bad Debt Expense under the Direct Write-Off and Allowance Method

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

Customer		Amount
Shawn Brooke		$11,700
Eve Denton		10,900
Art Malloy		15,100
Cassie Yost		2,800
	Total	40,500

a. Journalize the write-offs for under the direct write-off method. If an amount box does not require an entry, leave it blank.

b. Journalize the write-offs for under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $3,920,000 of credit sales during the year. Based on past history and industry averages, 1 1/4% of credit sales are expected to be uncollectible. For a compound transaction, if an amount box does not require an entry, leave it blank.

Write-off
Adjustment

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

Answer 1

Date	Account titles & Explanations					Debit	Credit
a)	Bad debts expens					40,500
	Accounts receivable - Shawn						11,700
	Accounts receivable -Eve Denton						10,900
	Accounts receivable-Art Malloy						15,100
	Accounts receivable-Cassie Yost						2,800
b)	Allowance for uncollectible accounts					40,500
	Accounts receivable - Shawn						11,700
	Accounts receivable -Eve Denton						10,900
	Accounts receivable-Art Malloy						15,100
	Accounts receivable-Cassie Yost						2,800
	Bad debts expense					49000
	Allowance for uncollectible accounts						49,000
	(3,920,000*1 1/4 %)
c)	net income will be higher under direct write off method by $8,500 (49000-40500)