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:

Date	Transaction
Apr. 13.	Wrote off account of Dean Sheppard, $2,060.
May 15.	Received $1,030 as partial payment on the $2,740 account of Dan Pyle. Wrote off the remaining balance as uncollectible.
July 27.	Received $2,060 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 $1,380 Duane DeRosa 1,030 Teresa Galloway 620 Ernie Klatt 870 Marty Richey 310
31.	If necessary, journalize the year-end adjusting entry for uncollectible accounts.

If no entry is required, select "No Entry Required" 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.

Date	Account	Debit	Credit
Apr. 13	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
May 15	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsCashNo Entry Required
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
July 27	Accounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry RequiredSales
	Accounts Payable-Dean SheppardAccumulated Depreciation-Office EquipmentAllowance for Doubtful AccountsBad Debt ExpenseNo entry
July 27	Accounts Payable-Dean SheppardAccumulated Depreciation-Office EquipmentAllowance for Doubtful AccountsCashNo Entry Required
	Accumulated Depreciation-Office EquipmentAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsCashNo Entry Required
Dec. 31	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Duane DeRosaAccounts Receivable-Duane DeRosaAllowance for Doubtful AccountBad Debt ExpenseNo Entry Required
	Accounts Payable-Teresa GallowayAccounts Receivable-Teresa GallowayAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Ernie KlattAccounts Receivable-Ernie KlattAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Marty RicheyAccounts Receivable-Marty RicheyAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
Dec. 31	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required

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, 2% of credit sales are expected to be uncollectible. Shipway recorded $503,200 of credit sales during the year.

Date	Account	Debit	Credit
Apr. 13	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
May 15	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleBad Debt ExpenseCashNo Entry Required
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsCashNo Entry Required
July 27	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts Payable-Dean SheppardAccumulated Depreciation-Store EquipmentAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
July 27	Accounts Payable-Dean SheppardBad Debt ExpenseCashInterest RevenueNo Entry Required
	Accounts Receivable-Dean SheppardAccumulated Depreciation-Store EquipmentBad Debt ExpenseCashNo Entry Required
Dec. 31	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsCashNo Entry Required
	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanNo Entry RequiredRetained EarningsSales
	Accounts Payable-Duane DeRosaAccounts Receivable-Duane DeRosaCashNo Entry RequiredRetained Earnings
	Accounts Payable-Teresa GallowayAccounts Receivable-Teresa GallowayCashNo Entry RequiredRetained Earnings
	Accounts Payable-Ernie KlattAccounts Receivable-Ernie KlattNo Entry RequiredRetained EarningsSales
	Accounts Payable-Marty RicheyAccounts Receivable-Marty RicheyCashNo Entry RequiredRetained Earnings
Dec. 31	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseNo Entry Required
	Accounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseIncome SummaryNo Entry Required

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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