During its first year of operations, Filippi’s Plumbing Supply Co. had net sales of $4,800,000

EX 9-15 Effect of doubtful accounts on net income

During its first year of operations, Filippi’s Plumbing Supply Co. had net sales of $4,800,000, wrote off $65,000 of accounts as uncollectible using the direct write-off method, and reported net income of $375,000. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1½% of net sales would be uncollectible.

Click here for the solution: During its first year of operations, Filippi’s Plumbing Supply Co. had net sales of $4,800,000

Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000

EX 9-16 Effect of doubtful accounts on net income

Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000, wrote off $70,000 of accounts as uncollectible using the direct write-off method, and reported net income of $450,000.

a. Determine what net income would have been in the second year if the allowance method (using 1½% of net 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.

Click here for the solution: Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000