Seaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31, 2016:
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, 2016:
Aging Class (Number Receivables Balance Estimated Percent of
of Days Past Due) _________on December 31 ________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 2016 under the direct write-off method.
b. Journalize the write-offs and the year-end adjusting entry for 2016 under the allowance method, assuming that the allowance account had a beginning balance of $95,000 on January 1, 2016, and the company uses the analysis of receivables method.
c. How much higher (lower) would Seaforth International's 2016 net income have been under the allowance method than under the direct write-off method?