Using the data in Exercise 6-10, assume that during the second year of operations Fisher Plumbing Supply Co. had sales of $3,000,000, wrote off $20,000 of accounts as uncollectible using the direct write-off method, and reported net income of $140,000.
a. Determine what net income would have been in the second year if the allowance method (using 1% of 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.
In Exercise 6-10
During its first year of operations, Fisher Plumbing Supply Co. had sales of $2,780,000, wrote off $16,000 of accounts as uncollectible using the direct write-off method, and reported net income of $120,000. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1% of sales would be uncollectible.