Question

During its first year of operations, Mack's Plumbing Supply Co. had sales of $3,250,000, wrote off $27,800 of accounts as uncollectible using the direct write-off method, and reported net income of $487,500. 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

Answer:

$487,500

Explanation:

The write off does not affect the realizable value of accounts receivable . Neither total assets nor net income is affected by the write off or specific account. Instead both assets and net income are affected in the period when bad debts expense is predicted and then recorded with an adjusting entry.

Accounts Receivable                                                      $ 3250,000

Less Allowance for Doubtful Accounts    $ 3250,000*1% = 32,500

Estimated Realizable Accounts Receivable $ 3217500

But if the amount of the bad debts decreases or increases as is given below then the the income is also increased or decreased by the amount given

Bad debts = $ 32,500

Uncollectibles previously written off= $ 27,800

Difference $ 4700

Net income $ 487,500

Less Difference $ 4700

Reported Income $ 482,800