1. The following selected transactions were taken from the records of Lights of the West Company for the first year of its operations ending December 31, 2010:
Jan. 24. Wrote off account of J. Huntley, $3,000.
Feb. 17. Received $1,500 as partial payment on the $4,000 account of Karlene Solomon. Wrote off the remaining balance as uncollectible.
May 29. Received $3,000 from J. Huntley, which had been written off on January 24.
Reinstated the account and recorded the cash receipt.
Nov.30. Wrote off the following accounts as uncollectible (record as one journal entry):
Don O'Leary $2,000
Kim Snider 1,500
Jennifer Kerlin 900
Tracy Lane 1,250
Lynn Fuqua 450
Dec. 31. Lights of the West Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 11⁄2% of credit sales are expected to be uncollectible. Lights of the West Company recorded $975,000 of credit sales during 2010.
a. Journalize the transactions for 2010 under the direct write-off method.
b. Journalize the transactions for 2010 under the allowance method.
c. How much higher (lower) would Lights of the West Company's net income have been under the direct write-off method than under the allowance method?