Review the scenario for ABC Company listed below:
The following financial information for the ABC Company is current as of December 31. The company shows gross accounts receivable of $250,000 with accounts the company has identified as bad debts expense of $25,000. Information on its accounts receivable past due aging schedule is as follows:
Under 30 days past due.........................................$200,000
30 60 days past due.............................................25,000
60 90 days past due.............................................10,000
90 days or more past due..........................................15,000
Total Accounts Receivable.....................................$250,000
• Complete the following on the Lesson 7 Template, which is an Excel spreadsheet.
1. Using the allowance method, prepare the journal entries to write off bad debts based on past due receivables 90 days or more past due.
2. Using the direct write-off method, prepare the journal entries to write off the bad debts expense.
3. Using the allowance method, prepare the balance sheet presentation of accounts receivable as a net realizable value method showing gross, the allowance, and net amounts.
4. Using the direct write-off method, prepare the balance sheet presentation of accounts receivable as it would show after the write offs.
5. Which method shows lower net realizable accounts receivable? Why?