Question

receivables method. Rustic Tables Company prepared the following ang receivable: Aging Class (Number Receivables Balance Estimated Percent of of Days Past Due) on December 31 Uncollectible Accounts 0-30 days $320,000 1% 31-60 days 110,000 61-90 days 24,000 91-120 days 18,000 More than 120 days 43,000 Total receivables $515,000 10 c. How much higher (lower) would Rustic Tables' net income have been under the direct write-on method than under the allowance method? EX 8-15 Effect of doubtful accounts on net income Obj. 5 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. EX 8-16 Effect of doubtful accounts on net income Obj. 5 Using the data in Exercise 8-15, assume that during the second year of operations Mack's Plumbing Supply Co. had sales of $7,450,000, wrote off $52,000 of accounts as uncollectible using the direct write-off method, and reported net income of $800,000. a. Determine what net income would have been in the second year if the allowance method (using 1% of sales) had been used in both the first and second years. b. Determine what the balance of the allowance for doubtful accounts would have been at the been at the end of the second year if the allowance method had been used in both the first and second yes
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Answer 1

Year 1 restated net income
Net Income given	$ 7,12,500
Addback: receivables wrote off using direct method	$     48,600
Total	$ 7,61,100
Less: Allowance for doubtful accounts (6740000*1%)	$     67,400
Net Income	$ 6,93,700

Year 2 restated net income
Net Income given	$ 8,00,000
Addback: receivables wrote off using direct method	$     52,000
Total	$ 8,52,000
Less: Allowance for doubtful accounts (7450000*1%)	$     74,500
Net Income	$ 7,77,500

Balance in allowance for doubtful accounts end of year 2
Year 1 allowance for doubtful accounts (6740000*1%)	$     67,400
Less: write off during year 1	$   (48,600)
Balance in allowance for doubtful accounts year 1	$     18,800
Add: Year 2 allowance for doubtful accounts (7450000*1%)	$     74,500
Less: write off during year 2	$   (52,000)
Balance in allowance for doubtful accounts end of year 2	$     41,300