Question

During its first year of operations, Mack's Plumbing Supply Co. had sales of $6,740,000, wrote off $48,600 of accounts as uncollectible using the direct write-off method, and reported net income of $712,500. Determine what the net income would have been if the allowance method had been used and the company estimated that 1% of sales would be uncollectible.

Answer 1

The  net income that would have been if the allowance method had been used is:$696,200.

Net income

Using this formula

Net income=Net income+Accounts uncollectible-(Sales×Estimated sales rate)

Let plug in the formula

Net income=$715,000+$48,600-($6,740,000×1%)

Net income=$715,000+$48,600-$67,400

Net income=$696,200

Therefore The  net income that would have been if the allowance method had been used is:$696,200.

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