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, $6,260.

May 15.

Received $3,130 as partial payment on the $8,330 account of Dan Pyle. Wrote off the remaining balance as uncollectible.

July 27.

Received $6,260 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	$4,190
Duane DeRosa	3,130
Teresa Galloway	1,880
Ernie Klatt	2,630
Marty Richey	940

Dec. 31

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

Question Content Area

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

Apr. 13	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardBad Debt ExpenseCashNo Entry	- Select -	- Select -
May 15	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleCashNo EntrySales	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleBad Debt ExpenseNo EntrySales	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleBad Debt ExpenseCashNo Entry	- Select -	- Select -
July 27-reinstate	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardBad Debt ExpenseCashNo Entry	- Select -	- Select -
July 27-collection	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsCashNo Entry	- Select -	- Select -
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsCashNo Entry	- Select -	- Select -
Dec. 31-write-off	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Payable-Duane DeRosaAccounts Receivable-Duane DeRosaBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Payable-Teresa GallowayAccounts Receivable-Teresa GallowayBad Debt ExpenseNo EntrySales	- Select -	- Select -
	Accounts Payable-Ernie KlattAccounts Receivable-Ernie KlattBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Payable-Marty RicheyAccounts Receivable-Marty RicheyBad Debt ExpenseCashNo Entry	- Select -	- Select -
Dec. 31-adjusting	Accounts PayableAccounts ReceivableBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts PayableAccounts ReceivableBad Debt ExpenseCashNo Entry	- Select -	- Select -

Question Content Area

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 $3,054,900 of credit sales during the year.

Apr. 13	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
May 15	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
July 27-reinstate	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
July 27-collection	Accounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseCashNo Entry	- Select -	- Select -
	Accounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseCashNo Entry	- Select -	- Select -
Dec. 31-write-off	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanAllowance for Doubtful AccountsCashNo Entry	- Select -	- Select -
	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
	Accounts Payable-Duane DeRosaAccounts Receivable-Duane DeRosaAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
	Accounts Payable-Teresa GallowayAccounts Receivable-Teresa GallowayAllowance for Doubtful AccountsCashNo Entry	- Select -	- Select -
	Accounts Payable-Ernie KlattAccounts Receivable-Ernie KlattAllowance for Doubtful AccountsNo EntrySales	- Select -	- Select -
	Accounts Payable-Marty RicheyAccounts Receivable-Marty RicheyAllowance for Doubtful AccountsCashNo Entry	- Select -	- Select -
Dec. 31-adjusting	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -
	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseNo Entry	- Select -	- Select -

Question Content Area

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

HigherLower

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