Avett Furniture Store has credit sales of $400,000 in 2014 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2014, $130,000 of accounts receivable remain uncollected. The credit manager prepared an aging schedule of accounts
receivable and estimates that $7,000 will prove to be uncollectible. On March 4, 2015, the credit manager authorizes a write-off of the $1,200 balance owed by B. Fernitti.
Instructions
1) Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2014.
2) Show the balance sheet presentation of accounts receivable on December 31, 2014.
3) On March 4, before the write-off, assume the balance of Accounts Receivable account is $160,000 and the balance of Allowance for Doubtful Accounts is a credit of $3,000. Make the appropriate entry to record the write-off of the Ferntti account. Also show the balance sheet presentation of accounts receivable before and after the write-off.
b) What are the differences between direct write off method and allowance method of recording bad debt expense? Which method is more suitable with matching principle? Why? Give a suitable example with necessary journal entries under both methods?