The following selected transactions were taken from the records of Kemper Company for the year ending December 31, 2008:
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Feb. 2. |
Wrote off account of L. Armstrong, $7,250. |
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May 10. |
Received $4,150 as partial payment on the $8,500 account of Jill Knapp. Wrote |
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off the remaining balance as uncollectible. |
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Aug. 12. |
Received the $7,250 from L. Armstrong, which had been written off on February |
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2. Reinstated the account and recorded the cash receipt. |
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Sept. 27. |
Wrote off the following accounts as uncollectible (record as one journal entry): |
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Kim Whalen |
$4,400 |
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Brad Johnson |
2,210 |
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Angelina Quan |
1,375 |
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Tammy Newsome |
2,850 |
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Donna Short |
1,690 |
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Dec. 31. |
The company prepared the following aging schedule for its accounts receivable: |
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Aging Class (Number |
Receivables Balance |
Estimated Percent of |
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of Days Past Due) |
on December 31 |
Uncollectible Accounts |
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0–30 days |
$160,000 |
3% |
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31–60 days |
40,000 |
10 |
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61–90 days |
18,000 |
20 |
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91–120 days |
11,000 |
40 |
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More than 120 days |
6,500 |
75 |
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Total receivables |
$235,500 |
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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, assuming that the allowance account had a beginning balance of $18,000 on January 1, 2008, and the company uses the analysis of receivables method.
c. How much higher (lower) would Kemper’s 2008 net income have been under the direct write off method than under the allowance method?