Corporate Financial Accounting 14th Edition by Carl Warren,James Reeve,Jonathan Duchac

Exercise 39

Effect of doubtful accounts on net income
Using the data in Exercise 9-15, assume that during the second year of operations, Mack's Plumbing Supply Co. had sales of $4,100,000, wrote off $34,000 of accounts as uncollectible using the direct write-off method, and reported net income of $600,000.
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 the 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. Hint: Use an Allowance for Doubtful Accounts T account.