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, $4,240. May 15. Received $2,120 as partial payment on the $5,640 account of Dan Pyle. Wrote off the remaining balance as uncollectible. July 27. Received $4,240 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 $2,840 Duane DeRosa 2,120 1,270 Teresa Galloway Ernie Klatt Marty Richey 1,780 640 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. 8,450 x Apr. 13 Bad Debt Expense Accounts Receivable-Dean Sheppard 8,450 x May 15 Cash 500 X Bad Debt Expense 6,600 X Accounts Receivable-Dan Pyle 7,100 x July 27 Accounts Receivable-Dean Sheppard 8,450 X Bad Debt Expense 8,450 X July 27 Cash 8,450 X Accounts Receivable-Dean Sheppard 8,450 X Dec. 31 Bad Debt Expense 13,510 X Accounts Receivable-Paul Chapman 2,225 x Accounts Receivable-Duane DeRosa 3,550 X Accounts Receivable-Teresa Galloway 4,770 X Accounts Receivable-Ernie klatt 1,275 x Accounts Receivable-Marty Richey 1,690 X Dec. 31 Cash X Accounts Payable X 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 $2,068,900 of credit sales during the year. Apr. 13 Allowance for Doubtful Accounts 8,450 X Accounts Receivable-Dean Sheppard 8,450 X May 15 Cash 500 Allowance for Doubtful Accounts 6,600 Accounts Receivable-Dan Pyle 7,100 X 8,450 X July 27 Accounts Receivable-Dean Sheppard Allowance for Doubtful Accounts 8,450 X July 27 Cash 8,450 X Accounts Receivable-Dean Sheppard 8,450 X Dec. 31 Allowance for Doubtful Accounts 13,510 Accounts Receivable-Paul Chapman 2,225 X Accounts Receivable-Duane DeRosa 3,550 X 4,770 X Accounts Receivable-Teresa Galloway Accounts Receivable-Ernie klatt Accounts Receivable-Marty Richey 1,275 X 1,690 Dec. 31 Bad Debt Expense 28,335 X Allowance for Doubtful Accounts 28,335 X 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 $ 8,225 X