Posner Company wrote off the following accounts receivable as uncollectible for
ID: 2369839 • 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
1) Debt expenses 35,000
accounts recievable 35000
2) to write of accounts
Debt expenses 35,000
accounts recievable 35000
adjusting entries
2,400,000 * 0.015 = 36,000
debt expense 36,000
allowance for doubtful accounts 36,000
3) using direct writeoff method debt expense = 35000
using allowance method debt expense = 36000
difference = 36,000 -35,000 = 1,000
hence 1,000 higher the net income would be