BuyFindarrow_forward

Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
ISBN: 9781337398169

Solutions

BuyFindarrow_forward

Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
ISBN: 9781337398169
Textbook Problem

Effect of doubtful accounts on net income

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.

To determine
The amount of net income would have been, if Company MPS estimated that 1% of sales would be uncollectible, instead of using direct write off method.

Explanation

It is calculated that bad debt expense under allowance method would be $67,400. But, Company MPS had followed direct write off method and write off $48,600 by debiting
(increasing) bad debt expense and crediting (decreasing) accounts receivable account. Hence, bad debt expense calculated under allowance method is higher than bad debt expense calculated under direct method by $18,800. Thus, $18,800 of increase in bad debt is deducted from $712,500 of net income calculated under direct method to determine $693,700 of net income would have been reported by Company MPS under allowance method.

Working note:

Particulars Amount Amount
Net income unde...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

For any events A and B with P(B) 0, show that P(A|B) + P(A|B) = 1.

Probability and Statistics for Engineering and the Sciences

What are the four kinds of resources?

Foundations of Business (MindTap Course List)

What is the function of a balance sheet?

College Accounting, Chapters 1-27

Additional investments of capital during the month are not reported on the statement of owners equity.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

Why do public utilities generally use different capital structures than biotechnology companies?

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)