June 8. Wrote off account of Kathy Quantel, $8,440.
Aug. 14. Received $3,000 as partial payment on the $12,500 account of Rosalie Oakes. Wrote off the remaining balance as uncollectible.
Oct. 16. Received the $8,440 from Kathy Quantel, whose account had been written off on June 8. Reinstated the account and recorded the cash receipt.
Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry):
Wade Dolan $4,600
Greg Gagne 3,600
Amber Kisko 7,150
Shannon Poole 2,975
Niki Spence 6,630
31. If necessary, record the year-end adjusting entry for uncollectible accounts.
a. Journalize the transactions for 2014 under the direct write-off method.
b. Journalize the transactions for 2014 under the allowance method, assuming that the allowance account had a beginning balance of $36,000 on January 1, 2014, and the company uses the analysis of receivables method. Rustic Tables Company prepared the following aging schedule for its accounts receivable:
Aging Class (Number
of Days Past Due)
Receivables Balance
on December 31
Estimated Percent of
Uncollectible Accounts
0–30 days $320,000 1%
31–60 days 110,000 3
61–90 days 24,000 10
91–120 days 18,000 33
More than 120 days 43,000 75
Total receivables $515,000
c. How much higher (lower) would Rustic Tables’ 2014 net income have been under the direct write-off method than under the allowance method?
Answer:
a.
June 8 Bad Debt Expense 8,440
Accounts Receivable—Kathy Quantel 8,440
Aug. 14 Cash 3,000
Bad Debt Expense 9,500
Accounts Receivable—Rosalie Oakes 12,500
Oct. 16 Accounts Receivable—Kathy Quantel 8,440
Bad Debt Expense 8,440
16 Cash 8,440
Accounts Receivable—Kathy Quantel 8,440
Dec. 31 Bad Debt Expense 24,955
Accounts Receivable—Wade Dolan 4,600
Accounts Receivable—Greg Gagne 3,600
Accounts Receivable—Amber Kisko 7,150
Accounts Receivable—Shannon Poole 2,975
Accounts Receivable—Niki Spence 6,630
31 No entry
b.
June 8 Allowance for Doubtful Accounts 8,440
Accounts Receivable—Kathy Quantel 8,440
Aug. 14 Cash 3,000
Allowance for Doubtful Accounts 9,500
Accounts Receivable—Rosalie Oakes 12,500
Oct. 16 Accounts Receivable—Kathy Quantel 8,440
Allowance for Doubtful Accounts 8,440
16 Cash 8,440
Accounts Receivable—Kathy Quantel 8,440
Dec. 31 Allowance for Doubtful Accounts 24,955
Accounts Receivable—Wade Dolan 4,600
Accounts Receivable—Greg Gagne 3,600
Accounts Receivable—Amber Kisko 7,150
Accounts Receivable—Shannon Poole 2,975
Accounts Receivable—Niki Spence 6,630
31 Bad Debt Expense 45,545
Allowance for Doubtful Accounts 45,545
Uncollectible accounts estimate
($47,090 – $1,545).
Computations:
Aging Class
(Number of Days
Past Due)
Receivables
Balance on
December 31
Estimated Doubtful
Accounts
Percent Amount
0–30 days $320,000 1% $ 3,200
31–60 days 110,000 3% 3,300
61–90 days 24,000 10% 2,400
91–120 days 18,000 33% 5,940
More than 120 days 43,000 75% 32,250
Total receivables $515,000 $47,090
Estimated balance of allowance account from aging schedule…………………… $47,090
Unadjusted credit balance of allowance account*…………………………………… 1,545
Adjustment………………………………………………………………………………… $45,545
* $36,000 – $8,440 – $9,500 + $8,440 – $24,955 = $1,545
c. Bad debt expense under:
Allowance method………………………………………………………………… $45,545
Direct write-off method ($8,440 + $9,500 – $8,440 + $24,955)…………… 34,455
Difference………………………………………………………………………… $11,090
Rustic Tables’ income would be $11,090 higher under the direct write-off method
than under the allowance method.