Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 8 Receivables 379

Journalize the following transactions in the accounts of Simmons Co., a medical equipment com-

pany that uses the direct write-off method of accounting for uncollectible receivables:

Aug. 8 Sold merchandise on account to Dr. Pete Baker, $21,400. The cost of the merchandise

sold was $12,600.

Sept. 7 Received $13,000 from Dr. Pete Baker and wrote off the remainder owed on the sale of

August 8 as uncollectible.

Dec. 20 Reinstated the account of Dr. Pete Baker that had been written off on September 7 and

received $8,400 cash in full payment.

Journalize the following transactions in the accounts of Simply Yummy Company, a restaurant

supply company that uses the allowance method of accounting for uncollectible receivables:

Jan. 13 Sold merchandise on account to Lynn Berry, $16,000. The cost of the merchandise sold

was $9,400.

Feb. 12 Received $4,000 from Lynn Berry and wrote off the remainder owed on the sale of

January 13 as uncollectible.

July 3 Reinstated the account of Lynn Berry that had been written off on February 12 and

received $12,000 cash in full payment.

During its first year of operations, West Plumbing Supply Co. had net sales of $1,800,000, wrote

off $51,000 of accounts as uncollectible using the direct write-off method, and reported net in-

come of $125,000. Determine what the net income would have been if the allowance method had

been used, and the company estimated that 3% of net sales would be uncollectible.

Using the data in Exercise 8-13, assume that during the second year of operations West Plumbing

Supply Co. had net sales of $2,200,000, wrote off $61,500 of accounts as uncollectible using the

direct write-off method, and reported net income of $143,500.

a. Determine what net income would have been in the second year if the allowance method

(using 3% of net sales) had been used in both the first and second years.

b. Determine what the balance of the allowance for doubtful accounts would have been at

the end of the second year if the allowance method had been used in both the first and

second years.

Becker wrote off the following accounts receivable as uncollectible for the first year of its oper-

ations ending December 31, 2008:

Customer Amount

Skip Simon $20,000

Clarence Watson 13,500

Bill Jacks 7,300

Matt Putnam 4,200

Total $45,000

a. Journalize the write-offs for 2008 under the direct write-off method.

b. Journalize the write-offs for 2008 under the allowance method. Also, journalize the es-

timate of bad debts. The company recorded $2,000,000 of credit sales during 2008.

Based on past history and industry averages, 3% of credit sales are expected to be un-

collectible.

c. How much higher (lower) would Becker’s 2008 net income have been under the direct

write-off method than under the allowance method?

Exercise 8-12

Entries for uncollectible
receivables, using allowance
method

Goal 4

Exercise 8-11

Entries for uncollectible
accounts, using direct
write-off method

Goal 3

Exercise 8-13

Effect of doubtful accounts on
net income

Goals3, 4

Exercise 8-14

Effect of doubtful accounts on
net income

Goals3, 4

Exercise 8-15

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

Goal 5