Pauline's Pottery has always used the direct write-off method to account for uncollectibles. The company's revenues, bad
Question:
The business is applying for a bank loan, and the loan officer requires figures based on the allowance method of accounting for bad debts. In the past, bad debts have run about 4% of revenues.
Requirements
Pauline must give the banker the following information:
1. How much more or less would net income be for 2018 if Pauline's Pottery were to use the allowance method for bad debts? Assume Pauline uses the percent-of-sales method.
2. How much of the receivables balance at the end of 2018 does Pauline's Pottery actually expect to collect? (Disregard beginning account balances for the purpose of this question.)
3. Explain why net income is more or less using the allowance method versus the direct write-off method for uncollectibles.
Step by Step Answer:
Horngrens Financial And Managerial Accounting The Financial Chapters
ISBN: 9780134486840
6th Edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura