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 for under the direct write-off method. If an amount box does not require an entry, leave it blank.
b. Journalize the write-offs and the year-end 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. 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 Seaforth International's net income have been under the allowance method than under the direct write-off method?
$

b. Journalize the write-offs and the year-end 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.

Dr Allowance for doubtful 102,500

Cr Accounts receivable - Kim Abel 21,550

Cr Accounts receivable - Lee Drake 33,925

Cr Accounts receivable - Jenny Green 27,565

Cr Accounts receivable - Mike Lamb 19,460

Dr Bad debt expense 117,500

Cr Allowance for doubtful 117,500

bad debt:

$750,000 x 1% = $7,500

$310,000 x 2% = $6,200

$102,000 x 15% = $15,300

$76,000 x 30% = $22,800

$97,000 x 60% = $58,200

total $110,000 + ($102,500 - $95,000) = $117,500

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

If Seaforth used the allowance method, its net income would have been $15,000 less.