Question

During its first year of operations, Fisher Plumbing Supply Co. had sales of $480,000, wrote off $7,700 of accounts as uncollectible using the direct write-off method, and reported net income of $52,800. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1 1/2% of sales would be uncollectible.

Answer 1

Sales $480,000

Less: Expenses (Bal Figure) $419,500

Less: Write Off Account $7,700

Net Income $52,800

If Allowance Method Is Used

Sales $480,000

Less: Expenses $419,500

Less: Write Off Account (1.5% of 480,000) $7,200

Net Income $53,300