The following selected transactions were taken from the recordsof Shipway Company for the first year of its operations endingDecember 31:
Apr. 13 Wrote off account of Dean Sheppard, $5,190. May 15 Received $2,600 as partial payment on the $6,900 account of DanPyle. Wrote off the remaining balance as uncollectible. July 27 Received $5,190 from Dean Sheppard, whose account had beenwritten off on April 13. Reinstated the account and recorded thecash receipt. Dec. 31 Wrote off the following accounts as uncollectible (record asone journal entry): Paul Chapman $3,480 Duane DeRosa 2,600 Teresa Galloway 1,560 Ernie Klatt 2,180 Marty Richey 780
Dec. 31 If necessary, record the year-end adjusting entry for theuncollectible accounts.
For those amount boxes in which no entry is required, leave thebox blank. If an entry is not required, select "No entry" from thedropdown box(es).
a. Journalize the transactions under the directwrite-off method.
Apr. 13 Bad Debt Expense Accounts Receivable-DeanSheppard May 15 Cash Bad Debt Expense Accounts Receivable-DanPyle July 27-reinstate Accounts Receivable-DeanSheppard Bad Debt Expense July 27-collection Cash Accounts Receivable-DeanSheppard Dec. 31-write-off Bad Debt Expense Accounts Receivable-PaulChapman Accounts Receivable-DuaneDeRosa Accounts Receivable-TeresaGalloway Accounts Receivable-ErnieKlatt Accounts Receivable-MartyRichey Dec. 31-adjusting No entry No entry
b. Shipway Company uses the percent of creditsales method of estimating uncollectible accounts expense. Based onpast history and industry averages, 2% of credit sales are expectedto be uncollectible. Shipway Company recorded $1,266,500 of creditsales during the year.
Journalize the transactions under the allowance method.
Apr. 13 Allowance for DoubtfulAccounts Accounts Receivable-DeanSheppard May 15 Cash Allowance for DoubtfulAccounts Accounts Receivable-DanPyle July 27-reinstate Accounts Receivable-DeanSheppard Allowance for DoubtfulAccounts July 27-collection Cash Accounts Receivable-DeanSheppard Dec. 31-write-off Allowance for DoubtfulAccounts Accounts Receivable-PaulChapman Accounts Receivable-DuaneDeRosa Accounts Receivable-TeresaGalloway Accounts Receivable-ErnieKlatt Accounts Receivable-MartyRichey Dec. 31-adjusting Bad Debt Expense Allowance for DoubtfulAccounts
Feedback
Remember that under the direct write-off method, Bad DebtExpense is not recorded until the customer's account is determinedto be worthless.
Under the allowance method once a customer account is identifiedas uncollectible, it is written off against the allowanceaccount.
Learning Objective 5.
c. How much higher (lower) would ShipwayCompany's net income have been under the direct write-off methodthan under the allowance method?
The following selected transactions were taken from the recordsof Shipway Company for the first year of its operations endingDecember 31:
| Apr. 13 | Wrote off account of Dean Sheppard, $5,190. | ||||||||||
| May 15 | Received $2,600 as partial payment on the $6,900 account of DanPyle. Wrote off the remaining balance as uncollectible. | ||||||||||
| July 27 | Received $5,190 from Dean Sheppard, whose account had beenwritten off on April 13. Reinstated the account and recorded thecash receipt. | ||||||||||
| Dec. 31 | Wrote off the following accounts as uncollectible (record asone journal entry): | ||||||||||
| |||||||||||
| Dec. 31 | If necessary, record the year-end adjusting entry for theuncollectible accounts. |
For those amount boxes in which no entry is required, leave thebox blank. If an entry is not required, select "No entry" from thedropdown box(es).
a. Journalize the transactions under the directwrite-off method.
| Apr. 13 | Bad Debt Expense | ||
| Accounts Receivable-DeanSheppard | |||
| May 15 | Cash | ||
| Bad Debt Expense | |||
| Accounts Receivable-DanPyle | |||
| July 27-reinstate | Accounts Receivable-DeanSheppard | ||
| Bad Debt Expense | |||
| July 27-collection | Cash | ||
| Accounts Receivable-DeanSheppard | |||
| Dec. 31-write-off | Bad Debt Expense | ||
| Accounts Receivable-PaulChapman | |||
| Accounts Receivable-DuaneDeRosa | |||
| Accounts Receivable-TeresaGalloway | |||
| Accounts Receivable-ErnieKlatt | |||
| Accounts Receivable-MartyRichey | |||
| Dec. 31-adjusting | No entry | ||
| No entry |
b. Shipway Company uses the percent of creditsales method of estimating uncollectible accounts expense. Based onpast history and industry averages, 2% of credit sales are expectedto be uncollectible. Shipway Company recorded $1,266,500 of creditsales during the year.
Journalize the transactions under the allowance method.
| Apr. 13 | Allowance for DoubtfulAccounts | ||
| Accounts Receivable-DeanSheppard | |||
| May 15 | Cash | ||
| Allowance for DoubtfulAccounts | |||
| Accounts Receivable-DanPyle | |||
| July 27-reinstate | Accounts Receivable-DeanSheppard | ||
| Allowance for DoubtfulAccounts | |||
| July 27-collection | Cash | ||
| Accounts Receivable-DeanSheppard | |||
| Dec. 31-write-off | Allowance for DoubtfulAccounts | ||
| Accounts Receivable-PaulChapman | |||
| Accounts Receivable-DuaneDeRosa | |||
| Accounts Receivable-TeresaGalloway | |||
| Accounts Receivable-ErnieKlatt | |||
| Accounts Receivable-MartyRichey | |||
| Dec. 31-adjusting | Bad Debt Expense | ||
| Allowance for DoubtfulAccounts |
Feedback
Remember that under the direct write-off method, Bad DebtExpense is not recorded until the customer's account is determinedto be worthless.
Under the allowance method once a customer account is identifiedas uncollectible, it is written off against the allowanceaccount.
Learning Objective 5.
c. How much higher (lower) would ShipwayCompany's net income have been under the direct write-off methodthan under the allowance method?
Related questions
The following selected transactions were taken from the recordsof Shipway Company for the first year of its operations endingDecember 31, 2016:
| Apr. | 13. | Wrote off account of Dean Sheppard,$8,460. | |
| May | 15. | Received $550 as partial payment onthe $7,040 account of Dan Pyle. Wrote off the remaining balance asuncollectible. | |
| July | 27. | Received $8,460 from Dean Sheppard,whose account had been written off on April 13. Reinstated theaccount and recorded the cash receipt. | |
| Dec. | 31. | Wrote off the following accounts asuncollectible (record as one journal entry): | |
| Paul Chapman | $2,055 | ||
| Duane DeRosa | 3,580 | ||
| Teresa Galloway | 4,760 | ||
| Ernie Klatt | 1,480 | ||
| Marty Richey | 1,690 | ||
| 31. | If necessary, record the year-endadjusting entry for uncollectible accounts. |
Required:
| A. | Journalize the transactions for2016 under the direct write-off method. If no entry is required,simply skip to the next transaction. Refer to the Chart of Accountsfor exact wording of account titles. |
| B. | Journalize the transactions for2016 under the allowance method. Shipway Company uses the percentof credit sales method of estimating uncollectible accountsexpense. Based on past history and industry averages, 0.90% ofcredit sales are expected to be uncollectible. Shipway Companyrecorded $3,788,000 of credit sales during 2016. If no entry isrequired, simply skip to the next transaction. Refer to the Chartof Accounts for exact wording of account titles. |
| C. | How much higher (lower) wouldShipway Companyâs net income have been under the direct write-offmethod than under the allowance method? |
X
Journal
A. Journalize the transactions for 2016 under the directwrite-off method. If no entry is required, simply skip to the nexttransaction. Refer to the Chart of Accounts for exact wording ofaccount titles.
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JOURNAL
The following selected transactions were taken from the recordsof Shipway Company for the first year of its operations endingDecember 31, 2016:
| Apr. | 13. | Wrote off account of Dean Sheppard,$8,460. | |
| May | 15. | Received $550 as partial payment onthe $7,040 account of Dan Pyle. Wrote off the remaining balance asuncollectible. | |
| July | 27. | Received $8,460 from Dean Sheppard,whose account had been written off on April 13. Reinstated theaccount and recorded the cash receipt. | |
| Dec. | 31. | Wrote off the following accounts asuncollectible (record as one journal entry): | |
| Paul Chapman | $2,055 | ||
| Duane DeRosa | 3,580 | ||
| Teresa Galloway | 4,760 | ||
| Ernie Klatt | 1,480 | ||
| Marty Richey | 1,690 | ||
| 31. | If necessary, record the year-endadjusting entry for uncollectible accounts. |
Required:
| A. | Journalize the transactions for2016 under the direct write-off method. If no entry is required,simply skip to the next transaction. Refer to the Chart of Accountsfor exact wording of account titles. |
| B. | Journalize the transactions for2016 under the allowance method. Shipway Company uses the percentof credit sales method of estimating uncollectible accountsexpense. Based on past history and industry averages, 0.90% ofcredit sales are expected to be uncollectible. Shipway Companyrecorded $3,788,000 of credit sales during 2016. If no entry isrequired, simply skip to the next transaction. Refer to the Chartof Accounts for exact wording of account titles. |
| C. | How much higher (lower) wouldShipway Companyâs net income have been under the direct write-offmethod than under the allowance method? |
X
Journal
A. Journalize the transactions for 2016 under the directwrite-off method. If no entry is required, simply skip to the nexttransaction. Refer to the Chart of Accounts for exact wording ofaccount titles.
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B. Journalize the transactions for 2016 under the allowancemethod. Shipway Company uses the percent of credit sales method ofestimating uncollectible accounts expense. Based on past historyand industry averages, 0.90% of credit sales are expected to beuncollectible. Shipway Company recorded $3,788,000 of credit salesduring 2016. If no entry is required, simply skip to the nexttransaction. Refer to the Chart of Accounts for exact wording ofaccount titles.
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C. How much higher (lower) would Shipway Companyâs net incomehave been under the direct write-off method than under theallowance method?
Higher or Lower or No Change by $____
