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, $4,180.

May 15.

Received $2,090 as partial payment on the $5,560 account of Dan Pyle. Wrote off the remaining balance as uncollectible.

July 27.

Received $4,180 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	$2,800
Duane DeRosa	2,090
Teresa Galloway	1,250
Ernie Klatt	1,760
Marty Richey	630

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.

Question Content Area

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

Apr. 13	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
May 15	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsCashNo entrySales	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseNo entrySales	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
July 27	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo entrySales	- Select -	- Select -
	Accounts Payable-Dean SheppardAccumulated Depreciation-Office EquipmentAllowance for Doubtful AccountsBad Debt ExpenseDividendsNo entry	- Select -	- Select -
July 27	Accounts Payable-Dean SheppardAccumulated Depreciation-Office EquipmentAllowance for Doubtful AccountsCashDividendsNo entry	- Select -	- Select -
	Accumulated Depreciation-Office EquipmentAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsCashDividendsNo entry	- Select -	- Select -
Dec. 31	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanAllowance for Doubtful AccountsBad Debt ExpenseNo entrySales	- Select -	- Select -
	Accounts Payable-Duane DeRosaAccounts Receivable-Duane DeRosaAllowance for Doubtful AccountBad Debt ExpenseCashNo entry	- Select -	- Select -
	Accounts Payable-Teresa GallowayAccounts Receivable-Teresa GallowayAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
	Accounts Payable-Ernie KlattAccounts Receivable-Ernie KlattAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
	Accounts Payable-Marty RicheyAccounts Receivable-Marty RicheyAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
Dec. 31	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad 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 $2,040,000 of credit sales during the year.

Apr. 13	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
May 15	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleBad Debt ExpenseCashNo entrySales	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseNo entrySales	- Select -	- Select -
	Accounts Payable-Dan PyleAccounts Receivable-Dan PyleAllowance for Doubtful AccountsBad Debt ExpenseCashNo entry	- Select -	- Select -
July 27	Accounts Payable-Dean SheppardAccounts Receivable-Dean SheppardAllowance for Doubtful AccountsBad Debt ExpenseNo entrySales	- Select -	- Select -
	Accounts Payable-Dean SheppardAccumulated Depreciation-Store EquipmentAllowance for Doubtful AccountsBad Debt ExpenseDividendsNo entry	- Select -	- Select -
July 27	Accounts Payable-Dean SheppardBad Debt ExpenseCashDividendsInterest RevenueNo entry	- Select -	- Select -
	Accounts Receivable-Dean SheppardAccumulated Depreciation-Store EquipmentBad Debt ExpenseCashNo entrySalaries Payable	- Select -	- Select -
Dec. 31	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsCashDividendsNo entry	- Select -	- Select -
	Accounts Payable-Paul ChapmanAccounts Receivable-Paul ChapmanDividendsNo entryRetained EarningsSales	- Select -	- Select -
	Accounts Payable-Duane DeRosaAccounts Receivable-Duane DeRosaCashDividendsNo entryRetained Earnings	- Select -	- Select -
	Accounts Payable-Teresa GallowayAccounts Receivable-Teresa GallowayCashDividendsNo entryRetained Earnings	- Select -	- Select -
	Accounts Payable-Ernie KlattAccounts Receivable-Ernie KlattDividendsNo entryRetained EarningsSales	- Select -	- Select -
	Accounts Payable-Marty RicheyAccounts Receivable-Marty RicheyCashDividendsNo entryRetained Earnings	- Select -	- Select -
Dec. 31	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseNo entrySales	- Select -	- Select -
	Accounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseIncome SummaryNo entrySales	- Select -	- Select -

Question Content Area

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

HigherLower

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