What are the advantages of using the allowance method in

Question

At December 31, 2010, the trial balance of Liquid Snake Company contained the following amounts before adjustment.

Instructions

(a) Prepare the adjusting entry at December 31, 2010, to record bad debts expense under each of the following independent assumptions.

(1) An aging schedule indicates that $12,500 of accounts receivable will be uncollectible.

(2) The company estimates that 2% of sales will be uncollectible.

(b) Repeat part (a) assuming that instead of a credit balance, there is a $1,100 debit balance in Allowance for Doubtful Accounts.

(c) During the next month, January 2011, a $3,200 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.

(d) Repeat part (c) assuming that Liquid Snake Company uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.

(e) What are the advantages of using the allowance method in accounting for uncollectible accounts as compared to the direct write-offmethod?