ACCT 211 Chapter 6: Chapter 6 Notes
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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): | ||||||||||
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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?
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 (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 for 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?
$
6. The bad-debt method that uses the accounts receivable agingreport is _______________.
the bad-debt expense method | |
the percentage-of-sales method | |
the direct write-off method | |
the percentage-of-receivables method |
7. When it is determined that too much money has been set asidefor uncollectible accounts, we will _______________.
credit reserve for uncollectible accounts | |
debit accounts receivable | |
credit cash | |
debit reserve for uncollectible accounts |
8. A customer whose account was previously written offunexpectedly pays us. If we are using the allowance method we would_______________.
debit accounts receivable and credit allowance for uncollectibleaccounts AND debit cash and credit accounts receivable | |
debit cash and credit bad-debt expense | |
debit reserve for uncollectible accounts and credit cash | |
debit bad-debt expense and credit cash |
9. When a retailer accepts a bank card (VISA or MasterCard),they will make what entry for the dayâs receipts?
debit cash and debit âcredit card expenseâ; credit sales | |
debit accounts receivable and credit sales | |
debit cash and credit sales | |
debit accounts receivable; credit sales, and credit âcredit cardexpenseâ |