Entries for bad debt expense under the direct write-off and allowance methods
The following selected transactions were taken from the records of Rustic Tables Company for the year ending December 31, 2014:
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
|
Receivables Balance
|
Estimated Percent of
|
|
of Days Past Due)
|
on December 31
|
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?