Entries for Bad Debt Expense under the Direct Write-Off and Allowance Methods

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

Apr. 13

Wrote off account of Dean Sheppard, $3,370.

May 15

Received $1,690 as partial payment on the $4,480 account of Dan Pyle. Wrote off the remaining balance as uncollectible.

July 27

Received $3,370 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt.

Dec. 31

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

Paul Chapman	$2,260
Duane DeRosa	1,690
Teresa Galloway	1,010
Ernie Klatt	1,420
Marty Richey	510

Dec. 31

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

For those amount boxes in which no entry is required, leave the box blank. If an entry is not required, select "No entry" from the dropdown box(es).

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

Apr. 13
May 15
July 27-reinstate
July 27-collection
Dec. 31-write-off
Dec. 31-adjusting

b. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 3% of credit sales are expected to be uncollectible. Shipway Company recorded $548,500 of credit sales during the year.

Journalize the transactions under the allowance method.

Apr. 13
May 15
July 27-reinstate
July 27-collection
Dec. 31-write-off
Dec. 31-adjusting

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