During its first year of operations, Mack's Plumbing Supply Co. had sales of $420,000, wrote off $6,700 of accounts as uncollectible using the direct write-off method, and reported net income of $46,200. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1 3/4% of sales would be uncollectible.

Question

Business

Aryanna Rodgers

7 April, 12:44

During its first year of operations, Mack's Plumbing Supply Co. had sales of $420,000, wrote off $6,700 of accounts as uncollectible using the direct write-off method, and reported net income of $46,200. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1 3/4% of sales would be uncollectible.

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Julie Harvey · Answer 1

The net income would have been $45,550

Explanation:

In order to calculate the amount the net income would have been if the allowance method had been used, and the company estimated that 1 3/4% of sales would be uncollectible, we would have make the following calculation:

Net income would have been if the allowance method had been used = $46,200 + $6,700 - ($420,000 * 1 3/4%)

Net income would have been if the allowance method had been used = $45,550

The net income would have been $45,550