Answer:
Shipway Company
Journal Entries:
a. Direct Method:
Apr. 13. Debit Bad Debts Expense $2,120
Credit Accounts Receivable (Dean Sheppard) $2,120
To write-off account deemed uncollectible.
May 15. Debit Cash $1,060
Debit Bad Debts Expense $1,760
Credit Accounts Receivable (Dan Pyle) $2,820
To record the receipt of cash and write-off of uncollectible balance.
July 27. Debit Accounts Receivable $2,120
Credit Bad Debts Expense $2,120
To reinstate the account.
Debit Cash $2,120
Credit Accounts Receivable $2,120
To record the receipt of cash.
Dec. 31 Debit Bad Debts Expense $13,375
Credit Accounts Receivable $13,375
To write-off the following uncollectible accounts: Paul Chapman $2,120 Duane DeRosa 3,590 Teresa Galloway 4,640 Ernie Klatt 1,310 Marty Richey 1,715.
b. Allowance Method:
Apr. 13. Debit Allowance for Uncollectibles $2,120
Credit Accounts Receivable (Dean Sheppard) $2,120
To write-off account deemed uncollectible.
May 15. Debit Cash $1,060
Debit Allowance for Uncollectibles $1,760
Credit Accounts Receivable (Dan Pyle) $2,820
To record the receipt of cash and write-off of uncollectible balance.
July 27. Debit Accounts Receivable $2,120
Credit Allowance for Uncollectibles $2,120
To reinstate a previously written-off account.
Debit Cash $2,120
Credit Accounts Receivable $2,120
To record the receipt of cash on account.
Dec. 31 Debit Allowance for Uncollectibles $13,375
Credit Accounts Receivable $13,375
To write-off of uncollectible accounts.
c. The amount by which Shipway Company’s net income would have been higher (lower) under the direct write-off method than under the allowance method is:
= $0
Explanation:
a) Data and Analysis:
Direct Method:
Apr. 13. Bad Debts Expense $2,120 Accounts Receivable (Dean Sheppard) $2,120
May 15. Cash $1,060 Bad Debts Expense $1,760 Accounts Receivable (Dan Pyle) $2,820
July 27. Accounts Receivable $2,120 Bad Debts Expense $2,120 Cash $2,120 Accounts Receivable $2,120
Dec. 31 Bad Debts Expense $13,375 Accounts Receivable $13,375
Uncollectible accounts: Paul Chapman $2,120 Duane DeRosa 3,590 Teresa Galloway 4,640 Ernie Klatt 1,310 Marty Richey 1,715
Allowance Method:
Apr. 13. Allowance for Uncollectibles $2,120 Accounts Receivable (Dean Sheppard) $2,120
May 15. Cash $1,060 Allowance for Uncollectibles $1,760 Accounts Receivable (Dan Pyle) $2,820
July 27. Accounts Receivable $2,120 Allowance for Uncollectibles $2,120 Cash $2,120 Accounts Receivable $2,120
Dec. 31 Allowance for Uncollectibles $13,375 Accounts Receivable $13,375
Uncollectible accounts: Paul Chapman $2,120 Duane DeRosa 3,590 Teresa Galloway 4,640 Ernie Klatt 1,310 Marty Richey 1,715
