Hamed Hazara Advertising has always used the direct write-off method to account for uncollectibles. The company's revenues, bad-debt write-offs, and year-end receivables for the most recent year follow.

Hamed Hazara is applying for a bank loan, and the loan officer requires figures based on the allowance method of accounting for bad debts. Hazara estimates that bad debts run about 2 percent of revenues each year.
Required
Hamed Hazara must give the banker the following information:
1. How much more or less would net income be for 2014 if Hazara were to use the allowance method for bad debts?
2. How much of the receivables balance at the end of 2014 does Hazara expect to collect? Compute these amounts, and then explain for Hazara why net income is more or less for 2014 using the allowance method versus the direct write-off method for uncollectibles.

Transcribed Image Text:

Year 2014 Write-Offs Receivables at Year End Revenues $3,300 $187,000 $44,000