Posner Company wrote off the following accounts receivable as uncollectible for
ID: 2369837 • Letter: P
Question
Posner Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31, 2010:
Customer
Amount
J. Jackson
$10,000
L. Stanton
9,500
C. Barton
13,100
S. Fenton
2,400
Total
$35,000
Required:
(1)
Journalize the write-offs for 2010 under the direct write-off method.
(2)
Journalize the write-offs for 2010 under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $2,400,000 of credit sales during 2010. Based on past history and industry average, 1.50% of credit sales are expected to be uncollectible.
(3)
How much higher or lower would Posner Company
Customer
Amount
J. Jackson
$10,000
L. Stanton
9,500
C. Barton
13,100
S. Fenton
2,400
Total
$35,000
Explanation / Answer
A. Journalize the write-offs for 2010 under the direct write-off method. If an amount box does not require an entry, leave it blank.
Dr Debt Expense 35,000
Cr Accounts Receivable 35,000
B. Journalize the write-offs for 2010 under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $2,400,000 of credit sales during 2010. Based on past history and industry averages, 1.5% of credit sales are expected to be uncollectible. If an amount box does not require an entry, leave it blank.
To write off the accounts:
Dr Allowance for Doubtful Accounts 35,000
Cr Accounts Receivable 35,000
Adjusting Entry:
2,400,000 x 0.015 = 36,000 adjusting entry
Dr Debt Expense 36,000
Cr Allowance for Doubtful Accounts 36,000
C. How much higher (lower) would Ponser Company's 2010 net income have been under the direct write-off method than under the allowance method?
Under the direct write-off method, debt expense was 35,000. Under the allowance method, debt expense was 36,000.
The difference is 36,000 - 35,000 = $1,000
That is how much higher net income would have been under the direct write-off method.