Entries for Bad Debt Expense Under the Direct Write-Off and Allowance Methods Seaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31: Customer Amount Kim Abel $21,550 Lee Drake 33,925 Jenny Green 27,565 Mike Lamb 19,460 Total $102,500 The company prepared the following aging schedule for its accounts receivable on December 31: Aging Class (Numberof Days Past Due) Receivables Balanceon December 31 Estimated Percent ofUncollectible Accounts 0-30 days $715,000 1% 31-60 days 310,000 2 61-90 days 102,000 15 91-120 days 76,000 30 More than 120 days 97,000 60 Total receivables $1,300,000 a. Journalize the write-offs under the direct write-off method. If an amount box does not require an entry, leave it blank. b. Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning credit balance of $95,000 on January 1 and the company uses the analysis of receivables method. For a compound transaction, if an amount box does not require an entry, leave it blank. Write-off Adjustment c. How much higher (lower) would Seaforth International's net income have been under the allowance method than under the direct write-off method? $
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Entries for
Seaforth International wrote off the following
| Customer | Amount | ||
| Kim Abel | $21,550 | ||
| Lee Drake | 33,925 | ||
| Jenny Green | 27,565 | ||
| Mike Lamb | 19,460 | ||
| Total | $102,500 |
The company prepared the following aging schedule for its accounts receivable on December 31:
| Aging Class (Number of Days Past Due) |
Receivables Balance on December 31 |
Estimated Percent of Uncollectible Accounts |
|||
| 0-30 days | $715,000 | 1% | |||
| 31-60 days | 310,000 | 2 | |||
| 61-90 days | 102,000 | 15 | |||
| 91-120 days | 76,000 | 30 | |||
| More than 120 days | 97,000 | 60 | |||
| Total receivables | $1,300,000 |
a. Journalize the write-offs under the direct write-off method. If an amount box does not require an entry, leave it blank.
b. Journalize the write-offs and the year-end
| Write-off | |||
| Adjustment | |||
c. How much higher (lower) would Seaforth International's net income have been under the allowance method than under the direct write-off method?
$
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