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Question
Morry Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31:
| Customer | Amount |
| J. Jackson | $10,000 |
| L. Stanton | 9,500 |
| C. Barton | 13,100 |
| S. Fenton | 2,400 |
| Total | $35,000 |
a. Journalize the write-offs for the current year under the direct write-off method.
b. Journalize the write-offs for the current year under the allowance method. Also, journalize the adjusting entry for uncollectible receivables assuming the company made $2,400,000 of credit sales during the year and, based on the industry average, the company expects uncollectible receivables to be 1.5% of credit sales.
c. How much higher or lower would Morry Company’s net income have been under the direct write-off method than under the allowance method?
Answer
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