EX 9-18 Entries for bad debt expense under the direct write-off and allowance methods

Magnetics International wrote off the following accounts receivable as uncollectible for the year ending December 31, 2012:

Customer	Amount
Trey Betts	$15,500
Cheryl Carson	9,000
Irene Harris	29,700
Renee Putman	3,100
Total	$57,300

The company prepared the following aging schedule for its accounts receivable on December 31, 2012:

Aging Class (Number	Receivables Balance	Estimated Percent of
of Days Past Due)	on December 31	Uncollectible Accounts
0–30 days	$600,000	1%
31–60 days	150,000	2
61–90 days	75,000	18
91–120 days	50,000	30
More than 120 days	60,000	50
Total receivables	$935,000	Â

a. Journalize the write-offs for 2012 under the direct write-off method.

b. Journalize the write-offs and the year-end adjusting entry for 2012 under the allowance method, assuming that the allowance account had a beginning balance of $55,000 on January 1, 2012, and the company uses the analysis of receivables method.

c. How much higher (lower) would Magnetics International’s 2012 net income have been under the allowance method than under the direct write-off method?