Question

"Effect of doubtful accounts on net income:

During its first year of operations, Mack's Plumbing Supply Co. had sales of $6,740,000 and wrote off $48,600 of accounts as uncollectible. Additionally, the company estimated that a certain percentage of accounts receivable would be uncollectible.

A) Calculate the net income for the first year after considering the write-off of $48,600 in uncollectible accounts.

B) If the estimated percentage of uncollectible accounts on the remaining accounts receivable is X%, calculate the adjusted net income.

Answer 1

To calculate net income after considering the write-off of uncollectible accounts, subtract uncollectible accounts from total sales, then calculate gross profit and subtract operating expenses. For adjusted net income, subtract estimated percentage of uncollectible accounts from remaining accounts receivable.

Step-by-step explanation:

To calculate the net income after considering the write-off of $48,600 in uncollectible accounts, we need to subtract the amount of uncollectible accounts from the total sales. This will give us the net sales. Then, we subtract the cost of goods sold from the net sales to find the gross profit. Finally, we subtract the operating expenses from the gross profit to obtain the net income.

Net sales = Total Sales - Uncollectible accounts

Gross profit = Net sales - Cost of goods sold

Net income = Gross profit - Operating expenses

To calculate the adjusted net income, we need to subtract the estimated percentage of uncollectible accounts from the remaining accounts receivable. This adjusted amount is then subtracted from the net income calculated previously.