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, $2,330.
May 15. Received $1,170 as partial payment on the $3,100 account of Dan Pyle.
Wrote off the remaining balance as uncollectible.
July 27. Received $2,330 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 $2,280
Duane DeRosa 3,535
Teresa Galloway 4,625
Ernie Klatt 1,095
Marty Richey 1,800
If necessary, record the year-end adjusting entry for uncollectible accounts.
Required:
A. Journalize the transactions under the direct write-off method.
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, 0.75% of credit sales are expected to be uncollectible. Shipway Company recorded $3,720,000 of credit sales during the year.
C. How much higher (lower) would Shipway Company’s net income have been under the direct write-off method than under the allowance method?