Final answer:
Net income for Mack's Plumbing Supply Co. in the second year using the allowance method, calculated at 1.5% of sales, would be $63,140. This figure is reached by adjusting the reported net income to account for an allowance for doubtful accounts, omitting the initial year's balance since the allowance method was not used in the first year.
Step-by-step explanation:
The net income for the second year using the allowance method would be $72,900. This is determined by first calculating the amount of the allowance for doubtful accounts, which would be 1.5% of the second year's sales ($744,000), equating to $11,160. Subtracting this amount from the reported net income of $74,300, would adjust the net income to account for the anticipated uncollectible accounts, resulting in a net income of $74,300 - $11,160 = $63,140.
To calculate what the net income would have been for the second year if the allowance method had been used in both years, we first need to apply the allowance method to the first year's figures. For the first year, a 1.5% allowance on $620,000 in sales amounts to $9,300. Therefore, the adjusted net income for the first year would have been $68,200 - $9,300 = $58,900. Going into the second year, the company would already have accounted for potential uncollectibles in the previous year and would adjust their net income for the second year accordingly.
However, since the direct write-off method was used in the first year and not the allowance method, we would be starting the second year without any allowance balance carried over. Therefore, we only need to consider the adjustment for the second year when calculating what the net income would have been. This gives us the adjusted net income for the second year as $63,140, considering only the second year's allowances.