Question

effect of doubtful accounts on net income. During its first year of operations, fisher plumbing supply Co. had sales of $2,780,000, wrote off $16,000 of accounts as uncollectible using the direct write-off method and reported net income of $120,000. 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

Solution:

Given,

Fisher plumbing supply Co. had sales of $2,780,000

Wrote off $16,000 of accounts as noncollectable

Net income of $120,000

Now,

Expense under direct write off: 16,000

Expense under Allowance: ($2,780,000*1%) = 27,800

which means expense is understated by = 27,800 - 16,000 = 11,800.

so, the net income under allowance would be 120,000 -11,800 = 108,200