Matching Credit Sales and Bad Debts Gunderson Corporation was started on January 1, 2001, and reported the following year-end balances in accounts receivable, credit sales, and write-offs of accounts receivable during 2001 and 2002:

Gunderson Corporation writes off bad accounts receivable as they are determined to be uncollectible. Thus, it reported bad expense of $5,400 and $26,700 in 2001 and 2002, respectively. Management of Gunderson believes the company will experience a 4 percent bad-debt rate each year.

a. What amount of bad debt expense would Gunderson have reported if it had used the allowance method for each year?

b. What balance in the allowance for uncollectible accounts would Gunderson have reported at year-end for each year if the allowance method had been used?

c. Determine the amount of understatement or overstatement of net income for each of the years as a result of using the direct write-off method.

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Accounts Receivable December 31 Credit Sales 2001 $105,000 2002 180,000 $410,000 630,000 Amounts Written Off as Uncollectible During the Year $ 5,400 26,700