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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:

Date	Transaction
Apr. 13.	Wrote off account of Dean Sheppard, $7,690.
May 15.	Received $3,850 as partial payment on the $10,230 account of Dan Pyle. Wrote off the remaining balance as uncollectible.
July 27.	Received $7,690 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 $5,150 Duane DeRosa 3,850 Teresa Galloway 2,310 Ernie Klatt 3,230 Marty Richey 1,150
31.	If necessary, journalize the year-end adjusting entry for uncollectible accounts.

If no entry is required, select "No Entry Required" and leave the amount boxes blank. If an amount box does not require an entry, leave it blank.

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

Date	Account	Debit	Credit
Apr. 13
May 15
July 27
July 27
Dec. 31
Dec. 31

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b. Journalize the transactions under the allowance method. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 1% of credit sales are expected to be uncollectible. Shipway Company recorded $3,751,900 of credit sales during the year.

Date	Account	Debit	Credit
Apr. 13
May 15
July 27
July 27
Dec. 31
Dec. 31

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

HigherLower