Question

During its first year of operations, Fisher Plumbing Supply Co. had sales of $650,000, wrote off $10,400 of accounts as uncollectible using the direct write-off method, and reported net income of $71,500. 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. Feedback Check My Work Add the bad debt expense determined by the direct allowance method rite-off method back to net income. Then, subtract the bad debt expense determined by the
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Answer #1

Solution:

Bad debt expense under allowance method = $650,000* 1.5% = $9,750

Net income under if allowance method is used = Net income reported + written off uncollectible under direct write off - Bad debt expense under allowance method

= $71,500 + $10,400 - $9,750

= $72,150

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