Question:
Posner Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31, 2010:
Customer Amount
J. Jackson $10,000
L. Stanton 9,500
C. Barton 13,100
S. Fenton 2,400
Total $35,000
Required:
(1) Journalize the write-offs for 2010 under the direct write-off method.
(2) Journalize the write-offs for 2010 under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $2,400,000 of credit sales during 2010. Based on past history and industry average, 1.50% of credit sales are expected to be uncollectible.
(3) How much higher or lower would Posner Company's 2010 net income have been under the direct write-off method than under the allowance method?