• Paulines Pottery has always used the direct write-off method to account for uncollectibles. The companys revenues, bad debt write-offs, and year-end receivables for the most recent year follows:

2013: Revenues = $150,000 Write-offs = $3,900 Receivables at year-end = $14,000

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. Required: Pauline must give the banker the following information:

• How much more or less would net income be for 2013 if Paulines Pottery were to use the allowance method for bad debts?
• Assume Pauline uses the percentage-of-sales method.
• How much of the receivables balance at the end of 2013 does Paulines Pottery actually expect to collect?
• Explain why net income is more or less using the allowance method versus the direct write-off method for uncollectibles.