EX 9-18 Entries for bad debt expense under the direct write-off and allowance methods
Magnetics International wrote off the following accounts receivable as uncollectible for the year ending December 31, 2012:
|
Customer |
Amount |
|
Trey Betts |
$15,500 |
|
Cheryl Carson |
9,000 |
|
Irene Harris |
29,700 |
|
Renee Putman |
3,100 |
|
Total |
$57,300 |
The company prepared the following aging schedule for its accounts receivable on December 31, 2012:
|
Aging Class (Number |
Receivables Balance |
Estimated Percent of |
|
of Days Past Due) |
on December 31 |
Uncollectible Accounts |
|
0–30 days |
$600,000 |
1% |
|
31–60 days |
150,000 |
2 |
|
61–90 days |
75,000 |
18 |
|
91–120 days |
50,000 |
30 |
|
More than 120 days |
60,000 |
50 |
|
Total receivables |
$935,000 |
a. Journalize the write-offs for 2012 under the direct write-off method.
b. Journalize the write-offs and the year-end adjusting entry for 2012 under the allowance method, assuming that the allowance account had a beginning balance of $55,000 on January 1, 2012, and the company uses the analysis of receivables method.
c. How much higher (lower) would Magnetics International’s 2012 net income have been under the allowance method than under the direct write-off method?