P9-5B At December 31, 2008, the trial balance of Schnakenberg Company contained the following
amounts before adjustment.
Debits Credits
Accounts Receivable $350,000
Allowance for Doubtful Accounts $ 1,500
Sales 850,000
Instructions
(a) Prepare the adjusting entry at December 31, 2008, to record bad debts expense under each
of the following independent assumptions.
(1) An aging schedule indicates that $17,550 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 $1,500 debit balance in
Allowance for Doubtful Accounts.
(c) During the next month, January 2009, a $4,500 account receivable is written off as uncollectible.
Prepare the journal entry to record the write-off.
(d) Repeat part (c) assuming that Schnakenberg 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-off method?
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