Entries for bad debt expense under the direct write-off and allowance methods

EX 9-14 Entries for bad debt expense under the direct write-off and allowance methods

The following selected transactions were taken from the records of Silhouette Company for the year ending December 31, 2012:

Mar. 4.

Wrote off account of Myron Rimando, $7,500.

May 19.

Received $2,000 as partial payment on the $10,000 account of Shirley Mason. Wrote off the remaining balance as uncollectible.

Aug. 7.

Received the $7,500 from Myron Rimando, which had been written off on March 4. Reinstated the account and recorded the cash receipt.

Dec. 31.

Wrote off the following accounts as uncollectible (record as one journal entry):

   
 

Brandon Peele

$ 5,000

 

Clyde Stringer

9,000

 

Ned Berry

13,000

 

Mary Adams

2,000

 

Gina Bowers

4,500

   

Dec. 31.

Wrote off the following accounts as uncollectible (record as one journal entry):

a. Journalize the transactions for 2012 under the direct write-off method.

b. Journalize the transactions for 2012 under the allowance method, assuming that the allowance account had a beginning balance of $45,000 on January 1, 2012, and the company uses the analysis of receivables method. Silhouette Company prepared the following aging schedule for its accounts receivable:

Aging Class (Number

Receivables Balance

Estimated Percent of

of Days Past Due)

on December 31

Uncollectible Accounts

0–30 days

$300,000

1%

31–60 days

80,000

4

61–90 days

20,000

15

91–120 days

10,000

40

More than 120 days

40,000

80

Total receivables

$450,000

 

c. How much higher (lower) would Silhouette’s 2012 net income have been under the direct write-off method than under the allowance method?

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