Question
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
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 | |||
Age Interval | Balance | Estimated Uncollectible Accounts Percent | Estimated Uncollectible Accounts Amount |
Not past due | $462,000 | 1/2% | $ |
1-30 days past due | 50,800 | 4 | |
31-60 days past due | 23,100 | 8 | |
61-90 days past due | 16,600 | 17 | |
91-180 days past due | 12,000 | 41 | |
Over 180 days past due | 8,800 | 70 | |
Total | $573,300 | $ |
Effect of Doubtful Accounts on Net Income
During its first year of operations, Macks Plumbing Supply Co. had sales of $250,000, wrote off $4,000 of accounts as uncollectible using the direct write-off method, and reported net income of $27,500. 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. $
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