Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its

Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31, 2014:


Customer Amount
Shawn Brooke $ 4,650
Eve Denton 5,180
Art Malloy 11,050
Cassie Yost 9,120
Total $30,000





a. Journalize the write-offs for 2014 under the direct write-off method.

b. Journalize the write-offs for 2014 under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $5,250,000 of credit sales during 2014. Based on past history and industry averages, ¾% of credit sales are expected to be uncollectible.

c. How much higher (lower) would Casebolt Company’s 2014 net income have been under the direct write-off method than under the allowance method?


Answer:


a.
 Bad Debt Expense 30,000
Accounts Receivable—Shawn Brooke 4,650
Accounts Receivable—Eve Denton 5,180
Accounts Receivable—Art Malloy 11,050
Accounts Receivable—Cassie Yost 9,120
b.
 Allowance for Doubtful Accounts 30,000
Accounts Receivable—Shawn Brooke 4,650
Accounts Receivable—Eve Denton 5,180
Accounts Receivable—Art Malloy 11,050
Accounts Receivable—Cassie Yost 9,120
Bad Debt Expense 39,375
Allowance for Doubtful Accounts 39,375
Uncollectible accounts estimate
($5,250,000 × 0.75% = $39,375).





c. Net income would have been $9,375 higher in 2014 under the direct write-off method, because bad debt expense would have been $9,375 higher under the allowance method ($39,375 expense under the allowance method vs. $30,000 expense under the direct write-off method).