EX 9-17 Entries for bad debt expense under the direct write-off and allowance methods
Spangler Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31, 2012:
Customer Amount
Will Boyette $10,000
Stan Frey 8,000
Tammy Imes 5,000
Shana Wagner 6,000
Total $29,000
a. Journalize the write-offs for 2012 under the direct write-off method.
b. Journalize the write-offs for 2012 under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $3,000,000 of credit sales during 2012. Based on past history and industry averages, 1½% of credit sales are expected to be uncollectible.
c. How much higher (lower) would Spangler Company’s 2012 net income have been under the direct write-off method than under the allowance method?
Answer:
a.
Bad Debt Expense......................................................... 29,000
Accounts Receivable—Will Boyette....................... 10,000
Accounts Receivable—Stan Frey........................... 8,000
Accounts Receivable—Tammy Imes...................... 5,000
Accounts Receivable—Shana Wagner................... 6,000
b.
Allowance for Doubtful Accounts................................ 29,000
Accounts Receivable—Will Boyette....................... 10,000
Accounts Receivable—Stan Frey........................... 8,000
Accounts Receivable—Tammy Imes...................... 5,000
Accounts Receivable—Shana Wagner................... 6,000
Bad Debt Expense......................................................... 45,000
Allowance for Doubtful Accounts........................... 45,000
Uncollectible accounts estimate.
($3,000,000 × 1½% = $45,000)
c. Net income would have been $16,000 higher in 2012 under the direct write-off method, because bad debt expense would have been $16,000 higher under the allowance method ($45,000 expense under the allowance method vs. $29,000 expense under the direct write-off method).
Bad Debt Expense......................................................... 29,000
Accounts Receivable—Will Boyette....................... 10,000
Accounts Receivable—Stan Frey........................... 8,000
Accounts Receivable—Tammy Imes...................... 5,000
Accounts Receivable—Shana Wagner................... 6,000
b.
Allowance for Doubtful Accounts................................ 29,000
Accounts Receivable—Will Boyette....................... 10,000
Accounts Receivable—Stan Frey........................... 8,000
Accounts Receivable—Tammy Imes...................... 5,000
Accounts Receivable—Shana Wagner................... 6,000
Bad Debt Expense......................................................... 45,000
Allowance for Doubtful Accounts........................... 45,000
Uncollectible accounts estimate.
($3,000,000 × 1½% = $45,000)
c. Net income would have been $16,000 higher in 2012 under the direct write-off method, because bad debt expense would have been $16,000 higher under the allowance method ($45,000 expense under the allowance method vs. $29,000 expense under the direct write-off method).
