Morry Company Wrote Off the Following Accounts Receivable as Uncollectible

question 128

Essay

Morry Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31:
Required: 1) Journalize the write-offs for the current year under the direct write-off method.
2) 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 the industry average for uncollectible receivables is 1.50% of credit sales.
3) How much higher or lower would Morry Company's net income have been under the direct write-off method than under the allowance method?

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Definitions:

Variable Input

A production input whose quantity can be changed in the short term to influence output.

Fixed

Related to something that is unchanging, constant, or securely attached and not subject to variation.

SAC Curves

Short-run average cost curves represent how a firm's average costs vary with output in the short term.

LAC Curves

Long Average Cost curves, which show the minimum average cost of production at different levels of output, assuming all production factors are variable.