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

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

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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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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