Question

During its first year of operations, Mack's Plumbing Supply Co. had sales of $620,000, wrote off $9,900 of accounts as uncollectible using the direct write-off method, and reported net income of $68,200. Determine what the net income would have been if the allowance method had been used, and the company estimated that 2% of sales would be uncollectible.

Answer 1

$65,700

Step-by-step explanation:

Calculation to determine Determine what the net income would have been if the allowance method had been used, and the company estimated that 2% of sales would be uncollectible.

Bad debt expense under allowance method = 2% of sales

Bad debt expense under allowance method= 620,000 x 2%

Bad debt expense under allowance method= $12,400

Excess of Bad debt expense under allowance method = Bad debt expense under allowance method - Bad debt expense under direct write off method

Excess of Bad debt expense under allowance method= $12,400 -$9,900

Excess of Bad debt expense under allowance method= $2,500

Net income under allowance method = Net income under direct write off method - Excess of Bad debt expense under allowance method

Net income under allowance method = $68,200 - $2,500

Net income under allowance method =$65,700

Therefore what the net income would have been if the allowance method had been used, and the company estimated that 2% of sales would be uncollectible is $65,700