Effect of Doubtful Accounts on Net Income During its first year of operations, Mack's Plumbing Supply Co. had sales of $300,000, wrote off $5,000 of accounts as uncollectible using the direct write-off method, and reported net income of $33,000. Assume that during the second year of operations Mack's Plumbing Supply Co. had sales of $360,000, wrote off $6,000 of accounts as uncollectible using the direct write-off method, and reported net income of $36,000. a. Determine what net income would have been in the second year if the allowance method (using 1.25% of sales) had been used both the first and second years. 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.

Effect of Doubtful Accounts on Net Income During its first year of operations, Mack's Plumbing Supply Co. had sales of $300,000, wrote off $5,000 of accounts as uncollectible using the direct write-off method, and reported net income of $33,000. Assume that during the second year of operations Mack's Plumbing Supply Co. had sales of $360,000, wrote off $6,000 of accounts as uncollectible using the direct write-off method, and reported net income of $36,000. a. Determine what net income would have been in the second year if the allowance method (using 1.25% of sales) had been used both the first and second years. 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.

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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