Effect of doubtful accounts on net income During its first year of operations, Mack's Plumbing Supply Co. had sales of $450,000, wrote off $7,200 of accounts as uncollectible using the direct write-off method, and reported net income of $49,500. 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. 9,000 X Feedback Check My Work Under the direct write-off method, Bad Debt Expense is recorded when the customer's account is determined to be worthless and written off. There i is no adjusting entry at year-end to record estimated bad debt. To compute net income using the allowance method, first compute net income before write-off of accounts associated with the bad debt expense. Then determine how an amount estimated for Bad Debt Expense based on a percent of sales, would affect that net income.

Effect of doubtful accounts on net income During its first year of operations, Mack's Plumbing Supply Co. had sales of $450,000, wrote off $7,200 of accounts as uncollectible using the direct write-off method, and reported net income of $49,500. 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. 9,000 X Feedback Check My Work Under the direct write-off method, Bad Debt Expense is recorded when the customer's account is determined to be worthless and written off. There i is no adjusting entry at year-end to record estimated bad debt. To compute net income using the allowance method, first compute net income before write-off of accounts associated with the bad debt expense. Then determine how an amount estimated for Bad Debt Expense based on a percent of sales, would affect that net income.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Effect of doubtful accounts on net income During its first year of operations, Mack's Plumbing Supply had sales of $390,000, wrote off $6,000 of accounts as uncollectible using the direct write-off method, and reported net income of $42,900. Assume that during the second year of operations Mack's Plumbing Supply had sales of $468,000, wrote off $7,200 of accounts as uncollectible using the direct write-off method, and reported net income of $46,800. a. Determine what net income would have been in the second year if the allowance method (using 1.25% of sales) had been used in both the first and second years. fill in the blank 1 of 25 b. Determine what the balance of the allowance for doubtful accounts would have been at the end of the second year if the allowance method had been used in both the first and second years. If required, use the minus sign to indicate a "debit" balance. fill in the blank 2 of 25
Estimating Doubtful Accounts Outlaw Bike Co. is a wholesaler of motorcycle supplies. An aging of the company’s accounts receivable on December 31, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows: Age Class Balance Percent Uncollectible Not past due $532,000 1/2 % 1–30 days past due 58,500 4 31-60 days past due 26,600 6 61–90 days past due 19,200 14 91–180 days past due 13,800 41 Over 180 days past due 10,100 80 $660,200 Estimate what the proper balance of the allowance for doubtful accounts should be as of December 31. Age Class Balance PercentUncollectible Estimated UncollectibleAccounts Amount Not past due $532,000 1/2% $fill in the blank 1 1-30 days past due 58,500 4 fill in the blank 2 31-60 days past due 26,600 6 fill in the blank 3 61-90 days past due 19,200 14 fill in the blank 4 91-180 days past due 13,800 41 fill in the blank 5 Over 180…
Selected data from Fanning Company follow: Balance SheetsAs of December 31 Year 3 Year 2 Accounts receivable $ 392,000 $ 375,000 Allowance for doubtful accounts (19,600 ) (15,000 ) Net accounts receivable $ 372,400 $ 360,000 Inventories, lower of cost or market $ 478,000 $ 431,000 Income StatementFor the Years Ended December 31 Year 3 Year 2 Net credit sales $ 2,019,000 $ 1,753,000 Net cash sales 408,000 314,000 Net sales 2,427,000 2,067,000 Cost of goods sold 1,602,000 1,434,000 Selling, general, and administrative expenses 239,600 214,500 Other expenses 39,600 22,100 Total operating expenses $ 1,881,200 $ 1,670,600 Requireda. Compute the accounts receivable turnover for Year 3.b. Compute the inventory turnover for Year 3.c. Compute the net margin for Year 2.
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View Policies Current Attempt in Progress Vaughn Manufacturing has outstanding accounts receivable totaling $ 6.47 million as of December 31 and sales on credit during the year of $ 24.5 million. There is also a credit balance of $ 11500 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? O $388200. O $ 399700. O $ 376700. O $1470000. Save for Later Attempts: 0 of 1 used Submit Answer
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Use the following to answer questions 6 – 7 MC, Inc., reported the following amounts at the end of the year: Total sales $888,000 Accounts receivable Sales allowances 60,000 3,500 Allowance for Uncollectible accounts 1,400 Sales discounts 18,000 9,000 Sales returns Determine total contra revenues for $ the company 6. 7. $ Determine net sales for the company
18 A company understated its income and accounts receivable last year by $5,000 Which entry should be made in the current year to correct this material error? O Debit Sales for $5,000; Credit Retained Earnings for $5,000 O Debit Accounts Receivable for $5,000; Credit Retained Earnings for $5,000 Debit Retained Earnings for $5,000; Credit Accounts Receivable for $5,000 Debit Retained Earnings for $5,000; Debit Sales for $5,000
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