The following selected transactions were taken from the records of Shipway Compa
ID: 2569774 • Letter: T
Question
The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31:
Apr. 13 Wrote off account of Dean Sheppard, $8,290. May 15 Received $420 as partial payment on the $7,220 account of Dan Pyle. Wrote off the remaining balance as uncollectible. July 27 Received $8,290 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt. Dec. 31 Wrote off the following accounts as uncollectible (record as one journal entry): Paul Chapman $2,280 Duane DeRosa 3,535 Teresa Galloway 4,625 Ernie Klatt 1,095 Marty Richey 1,800 31 If necessary, record the year-end adjusting entry for uncollectible accounts. Required: A. Journalize the transactions 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. B. Journalize the transactions under the allowance method. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 0.75% of credit sales are expected to be uncollectible. Shipway Company recorded $3,720,000 of credit sales during the year. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles. C. How much higher (lower) would Shipway Company’s net income have been under the direct write-off method than under the allowance method?
Explanation / Answer
Date
Particulars
Debit
Credit
Apr-13
Wrote off account of Dean sheppard
Bad debt expense
8290
Accounts receivable - Dean Shepard
8290
May-15
Received $500 as partial payment on the $7100 account of Dan pyle
Cash
420
Bad Debt expense
6800
Accounts receivable - Dan pyle
7220
Jul-27
Received $8450 from dean sheppard, whose account had been written off on April 13
Accounts receivable - Dean sheppard
8290
Bad debt expense
8290
Cash
8290
Accounts receivable - Dean sheppard
8290
Dec-31
wrote off the following accounts as uncollectible
Bad Debt expense
13335
Accounts receivable - Pual chapman
2280
Accounts receivable - Duane Derosa
3535
Accounts receivable - Teresa Galloway
4625
Accounts receivable - Ernie Klatt
1095
Accounts receivable- Marty Richey
1800
B
Journalize transactions under the allowance method
Apr-13
Allowance for Doubtful Accounts
8290
Accounts receivable - Dean Shepard
8290
May-15
Cash
420
Allowance for Doubtful Accounts
6800
Accounts receivable - Dan pyle
7220
Jul-27
Accounts receivable - Dean sheppard
8290
Allowance for Doubtful Accounts
8290
Cash
8290
Accounts receivable - Dean sheppard
8290
Dec-31
Allowance for Doubtful Accounts
13335
Accounts receivable - Pual chapman
2280
Accounts receivable - Duane Derosa
3535
Accounts receivable - Teresa Galloway
4625
Accounts receivable - Ernie Klatt
1095
Accounts receivable- Marty Richey
1800
Dec-31
Bad debts
27900
Allowance for Doubtful Accounts
27900
(3720000* 0.75%)
C
Particulars
$
Allowance Method
$27,900
Direct write off method
$20,135
($8290+$6800-$8290+$13335)
Difference
$7,765
Date
Particulars
Debit
Credit
Apr-13
Wrote off account of Dean sheppard
Bad debt expense
8290
Accounts receivable - Dean Shepard
8290
May-15
Received $500 as partial payment on the $7100 account of Dan pyle
Cash
420
Bad Debt expense
6800
Accounts receivable - Dan pyle
7220
Jul-27
Received $8450 from dean sheppard, whose account had been written off on April 13
Accounts receivable - Dean sheppard
8290
Bad debt expense
8290
Cash
8290
Accounts receivable - Dean sheppard
8290
Dec-31
wrote off the following accounts as uncollectible
Bad Debt expense
13335
Accounts receivable - Pual chapman
2280
Accounts receivable - Duane Derosa
3535
Accounts receivable - Teresa Galloway
4625
Accounts receivable - Ernie Klatt
1095
Accounts receivable- Marty Richey
1800
B
Journalize transactions under the allowance method
Apr-13
Allowance for Doubtful Accounts
8290
Accounts receivable - Dean Shepard
8290
May-15
Cash
420
Allowance for Doubtful Accounts
6800
Accounts receivable - Dan pyle
7220
Jul-27
Accounts receivable - Dean sheppard
8290
Allowance for Doubtful Accounts
8290
Cash
8290
Accounts receivable - Dean sheppard
8290
Dec-31
Allowance for Doubtful Accounts
13335
Accounts receivable - Pual chapman
2280
Accounts receivable - Duane Derosa
3535
Accounts receivable - Teresa Galloway
4625
Accounts receivable - Ernie Klatt
1095
Accounts receivable- Marty Richey
1800
Dec-31
Bad debts
27900
Allowance for Doubtful Accounts
27900
(3720000* 0.75%)
C
Particulars
$
Allowance Method
$27,900
Direct write off method
$20,135
($8290+$6800-$8290+$13335)
Difference
$7,765