excercise 7-1

Notes receivabl Interest receivable Inventory 65,000 4,800 $148,020 Total current assets $75 from CD and $90 from promissory note. EXERCISES LO1 Exercise 7-1 Comparison of the Direct Write-Off and Allowance EXAMPLE 7-1,7-2,7-3 Methods of Accounting for Bad Debts In its first year of business, Rideaway Bikes has net income of $145,000, exclusive of any adjust- ment for bad debts expense. The president of the company has asked you to calculate net income under each of two alternatives of accounting for bad debts: the direct write-off method and the allowance method. The president would like to use the method that will result in the higher net income. So far, no adjustments have been made to write off uncollectible accounts bad debts. The relevant data are as follows: or to estimate Write-offs of uncollectible accounts during the year Net credit salos $10,500 $650,000 2% Estimated percentage of net credit sales that will be uncollectiblo Required Compute net income under each of the two alternatives. Does Rideaway have a choice as to which method to use? If so, should it base its choice on which method will result in the higher net income? (Ignore income taxes.) Explain