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, $2,910. May 15. Received $1,460 as partial payment on the $3,870 account of Dan Pyle. Wrote off the remaining balance as uncollectible. July 27. Received $2,910 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 Duane DeRosa $1,950 1,460 Teresa Galloway 870 0 Ernie Klatt 1,220 Marty Richey 440 31. If necessary, record the year-end adjusting entry for the uncollectible accounts. 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, 3% of credit sales are expected to be uncollectible. Shipway Company recorded $473,200 of credit sales during the year. Apr. 13 Allowance for Doubtful Accounts Accounts Receivable-Dean Sheppard May 15 Cash Allowance for Doubtful Accounts Accounts Receivable-Dan Pyle July 27 Accounts Receivable-Dean Sheppard Allowance for Doubtful Accounts July 27 Cash Accounts Receivable-Dean Sheppard Dec. 31 Allowance for Doubtful Accounts Accounts Receivable-Paul Chapman Accounts Receivable-Duane DeRosa Accounts Receivable-Teresa Galloway Accounts Receivable-Ernie Klatt Accounts Receivable-Marty Richey Accounts Receivable-Marty Richey Dec. 31 Bad Debt Expense Allowance for Doubtful Accounts Feedback Check My Work Remember that under the direct write-off method, Bad Debt Expense is not recorded until the customer's account is determined to be worthless. Under the allowance method once a customer account is identified as uncollectible, it is written off against the allowance account. c. How much higher (lower) would Shipway Company's net income have been under the direct write-off method than under the allowance method? Higher by $ Feedback Check My Work Compare the bad debt expense account balance for both methods. Feedback Check My Work