Entries for Bad Debt Expense under the Direct Write-Off and Allowance Methods

The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31:

Apr. 13. Wrote off account of Dean Sheppard, $6,480.

May 15. Received $3,240 as partial payment on the $8,620 account of Dan Pyle. Wrote off the remaining balance as uncollectible.

July 27. Received $6,480 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt.

Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry):

Paul Chapman $4,340

Duane DeRosa 3,240

Teresa Galloway 1,940

Ernie Klatt 2,720

Marty Richey 970 31.

If necessary, record the year-end adjusting entry for the uncollectible accounts.

If no entry is required, select "No entry" and leave the amount boxes blank. If an amount box does not require an entry, leave it blank.

a. Journalize the transactions under the direct write-off method.

DEBT CREDIT

Apr. 13 -----

May 15

July 27

July 27

Dec. 31

Dec. 31

b. Journalize the transactions under the allowance method. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 1% of credit sales are expected to be uncollectible. Shipway Company recorded $3,160,300 of credit sales during the year.

Apr. 13

May 15

July 27

July 27

Dec. 31

Dec. 31

c. How much higher (lower) would Shipway Company's net income have been under the direct write-off method than under the allowance method?

____ by $