Rocks Shoes is a three-year old company that started out producing specialty shoes for rock climbing and mountaineering.The shoe's unique styling has made them a hit with climbing enthusiasts, and the company is now growing rapidly.Rocks needs additional capital to expand its manufacturing capacity, and it plans to sell additional shares of stock to raise money.

During its first three years in operation, Rocks used the direct-write off method to account for uncollectible accounts.Information about sales, write-offs, and the company's income follows:

Sales write-offs Net Income

Year 1 $2,400,000 0 $100,000

Year 2 6,300,000 24,000 300,000

Year 3 12,900,000 111,000 550,000

Rocks is required to have audited financial statements prior to offering its shares of stock for sale.This will require the company to recompute its income under generally accepted accounting principles for each of the three prior years.The only item that requires adjustment is the treatment of uncollectible accounts.

Rocks estimates that the allowance for uncollectible accounts balance should have been $75,000, $250,000, and $500,000, respectively, at the end of Years 1,2, and 3.

(a) Prepare the journal entries that were used by Rocks for each year under the direct write-off method.

(b) Prepare the journal entries that would have been made each year had the allowance method been used.Be sure to include entries to both establish the allowance and record the write offs.

(c) How much is the corrected net income for each year?Will the reduction in income potentially impact the amount of capital that can be raised?