EX 9-13 Entries for bad debt expense under the direct write-off and allowance methods

The following selected transactions were taken from the records of Aprilla Company for
the first year of its operations ending December 31, 2012:
Jan. 27. Wrote off account of C. Knoll, $6,000.
Feb. 17. Received $1,000 as partial payment on the $3,000 account of Joni Lester.
Wrote off the remaining balance as uncollectible.
Mar. 3. Received $6,000 from C. Knoll, which had been written off on January 27.
Reinstated the account and recorded the cash receipt.
Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry):

Jason Short            $4,500
Kim Snider             1,500
Sue Pascall             1,100
Tracy Lane             3,500
Randy Pape               500

           31. If necessary, record the year-end adjusting entry for uncollectible accounts.
a. Journalize the transactions for 2012 under the direct write-off method.
b. Journalize the transactions for 2012 under the allowance method. Aprilla Company
uses the percent of credit sales method of estimating uncollectible accounts expense.
Based on past history and industry averages, 1¾% of credit sales are expected to be
uncollectible. Aprilla Company recorded $1,600,000 of credit sales during 2012.
c. How much higher (lower) would Aprilla Company’s net income have been
under the direct write-off method than under the allowance method?

Answer:
a.
Jan. 27
Bad Debt Expense................................................ 6,000      
                Accounts Receivable—C. Knoll.....................  6,000

Feb. 17
Cash...................................................................... 1,000    
Bad Debt Expense................................................ 2,000      
                  Accounts Receivable—Joni Lester...............  3,000

Mar. 3
Accounts Receivable—C. Knoll.......................... 6,000      
                Bad Debt Expense..........................................  6,000    

         3
Cash...................................................................... 6,000      
               Accounts Receivable—C. Knoll.....................  6,000

Dec. 31
Bad Debt Expense................................................ 11,100      
                   Accounts Receivable—Jason Short .............  4,500      
                  Accounts Receivable—Kim Snider...............  1,500      
                   Accounts Receivable—Sue Pascall..............  1,100      
                   Accounts Receivable—Tracy Lane...............  3,500      
                   Accounts Receivable—Randy Pape..............  500

    31 No entry

b.
Jan. 27
Allowance for Doubtful Accounts....................... 6,000      
                Accounts Receivable—C. Knoll.....................  6,000


Feb. 17
Cash...................................................................... 1,000    
Allowance for Doubtful Accounts....................... 2,000      
                  Accounts Receivable—Joni Lester...............  3,000

Mar. 3
Accounts Receivable—C. Knoll.......................... 6,000      
                 Allowance for Doubtful Accounts.................  6,000    

        3
Cash...................................................................... 6,000      
              Accounts Receivable—C. Knoll.....................  6,000

June 30
Allowance for Doubtful Accounts....................... 11,100      
                 Accounts Receivable—Jason Short .............  4,500      
                 Accounts Receivable—Kim Snider...............  1,500      
                 Accounts Receivable—Sue Pascall..............  1,100      
                 Accounts Receivable—Tracy Lane...............  3,500      
                 Accounts Receivable—Randy Pape..............  500

Dec. 31
Bad Debt Expense................................................ 28,000      
               Allowance for Doubtful Accounts.................  28,000  
                    Uncollectible accounts estimate.
                     ($1,600,000 × 1¾% = $28,000)

c.
Bad debt expense under:  
             Allowance method ......................................................................... $28,000  
             Direct write-off method ($6,000 + $2,000 – $6,000 + $11,100).....  13,100  
             Difference ($28,000 – $13,100) ...................................................... $14,900  

Aprilla Company’s income would be $14,900 higher under the direct write-off method than under the allowance method.