Reference no: EM132681437

Problem - Entries for bad debt expense under the direct write-off and allowance methods

The following selected transactions were taken from the records of Aprilla Company for the first year of its operations ending December 31, 2012:

Jan. 27. Wrote off account of C. Knoll, $6,000.

Feb. 17. Received $1,000 as partial payment on the $3,000 account of Joni Lester. Wrote off the remaining balance as uncollectible.

Mar. 3. Received $6,000 from C. Knoll, which had been written off on January 27. Reinstated the account and recorded the cash receipt.

Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry):

Jason Short $4,500

Kim Snider 1,500

Sue Pascall 1,100

Tracy Lane 3,500

Randy Pape 500

Dec. 31. If necessary, record the year-end adjusting entry for uncollectible accounts.

Required -

a. Journalize the transactions for 2012 under the direct write-off method.

b. Journalize the transactions for 2012 under the allowance method. Aprilla Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 13⁄4% of credit sales are expected to be uncollectible. Aprilla Company recorded $1,600,000 of credit sales during 2012.

c. How much higher (lower) would Aprilla Company's net income have been under the direct write-off method than under the allowance method?