Question

During the first year of operationsMack plumbing had sales of 6740000 wrote off 48600 of accounts as uncollectableusing the direct write off method and reported net income of712500. Assume that during the second year of operationns Mack plumbing had sales of 7450000 wrote off52000 of accounts uncollectable using the direct write off method and reported a net income of 800000determine net income of second year if the allowance method using 1% of sales in both first and second years and determine what balance allowenxefor doubtful accounts would have been at the end of second year if allowance method had been used first and second year

Answer 1

Year	Expense Actually Reported	Expense Based on Estimate	Increase (Decrease) in Amount of Expense	Balance of allowance account
Year 1	$                       48,600	$           67,400	$           18,800	$         18,800
Year 2	$                       52,000	$           74,500	$           22,500	$         41,300

Net Income of second year if allowance method is used = $800000+52000-74500 = $777500

Balance in allowance method = $41300