The following selected transactions were taken from the records of Shaw Company for the first year of its operations ending December 31, 2008:
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Jan. 31. |
Wrote off account of B. Roberts, $2,400. |
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Mar. 26. |
Received $1,500 as partial payment on the $3,500 account of Carol Castellino. |
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Wrote off the remaining balance as uncollectible. |
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July. 7 |
Received $2,400 from B. Roberts, which had been written off on January 31. Re |
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instated the account and recorded the cash receipt. |
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Oct. 12 |
Wrote off the following accounts as uncollectible (record as one journal entry): |
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Julie Lindley |
$1,350 |
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Mark Black |
950 |
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Jennifer Kerlin |
525 |
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Beth Chalhoub |
1,125 |
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Allison Fain |
725 |
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Dec. 31. |
Shaw Company uses the percent of credit sales method of estimating uncol |
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lectible accounts expense. Based upon past history and industry averages, 2% |
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of credit sales are expected to be uncollectible. Shaw recorded $750,000 of credit |
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sales during 2008. |
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a. Journalize the transactions for 2008 under the direct write off method.
b. Journalize the transactions for 2008 under the allowance method.
c. How much higher (lower) would Shaw’s 2008 net income have been under the direct write off method than under the allowance method?