Survey of Accounting, 6th Edition, Warren

E6-11 Effect of doubtful accounts on net income

Using the data in Exercise 6-10 (At bottom), assume that during the second year of operations Williams Plumbing Supply Co. had net sales of $7,200,000, wrote off $80,000 of accounts as uncollectible using the direct write-off method, and reported net income of $625,000.

a. Determine what net income would have been in the second year if the allowance method (using 1 3/4% of net sales) had been used in both the first and second years.

b. Determine what the balance of Allowance for Doubtful Accounts would have been at the end of the second year if the allowance method had been used in both the first and second years. Information from E6-10

During its first year of operations, Williams Plumbing Supply Co. had net sales of $6,500,000, wrote off $40,000 of accounts as uncollectible using the direct write-off method, and reported net income of $490,000.