Seaforth International wrote off the following accounts receivable as uncollecti

Question

Seaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31:

The company prepared the following aging schedule for its accounts receivable on December 31:

How much higher (lower) would Seaforth International’s net income have been under the allowance method than under the direct write-off method?

A. On December 31, journalize the write-offs under the direct write-off method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles.

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B. On December 31, journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning balance of $95,000 and the company uses the analysis of receivables method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles.

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C. How much higher (lower) would Seaforth International’s net income have been under the allowance method than under the direct write-off method?

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Interest Expense

Customer Amount Kim Abel $ 21,550 Lee Drake 33,925 Jenny Green 27,565 Mike Lamb 19,460 Total $102,500

Explanation / Answer

A) General Journal Debit Credit Bad debts expense 102,500 Account receivable 102,500 B) Allowance for uncollectible account 102,500 Account receivable 102,500 Bad debts expense 117,150 Allowance for uncollectible account 117,150 (109650+(102500-95000) Estimated bad debts Aging Class estimated Receivable Percent bad debts 0---30 715,000 1% 7150 31---60 310,000 2% 6200 61---90 102,000 15% 15300 91--120 76,000 30% 22800

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