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Effect of Doubtful Accounts on Net Income During its first year of operations, Mack's Plumbing Supply Co. had sales of $550,000, wrote off $8,800 of
Effect of Doubtful Accounts on Net Income During its first year of operations, Mack's Plumbing Supply Co. had sales of $550,000, wrote off $8,800 of accounts as uncollectible using the direct write-off method, and reported net income of $60,500. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1 3/4% of sales would be uncollectible. Providing for Doubtful Accounts At the end of the current year, the accounts receivable account has a debit balance of $1,169,000 and sales for the year total $13,260,000. a. The allowance account before adjustment has a credit balance of $15,800. Bad debt expense is estimated at 1/2 of 1% of sales. b. The allowance account before adjustment has a credit balance of $15,800. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $50,600. c. The allowance account before adjustment has a debit balance of $5,300. Bad debt expense is estimated at 1/4 of 1% of sales. d. The allowance account before adjustment has a debit balance of $5,300. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $44,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above. a. $ A A A : A Estimating Doubtful Accounts Performance Bike Co. is a wholesaler of motorcycle supplies. An aging of the company's accounts receivable on December 31 and a historical analysis of the percentage of uncollectible accounts in each age category are as follows: Estimate what the proper balance of the allowance for doubtful accounts should be as of December 31. Performance Bike Co. Estimation of Uncollectible Accounts December 31 Estimated Uncollectible Accounts Estimated Uncollectible Accounts Percent Amount 1/2% Age Interval Balance Not past due $802,000 88,200 40,100 28,900 1-30 days past due 31-60 days past due 61-90 days past due 91-180 days past due Over 180 days past due Total Hill 20,900 15,200 $995,300
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