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During its first year of operations, Fisher Plumbing Supply Co. had sales of $480,000, wrote off $7,700 of accounts as uncollectible using the direct write-off method, and reported net income of $52,800. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1 1/2% of sales would be uncollectible.

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Answer:

Sales                                       $480,000

Less: Expenses (Bal Figure)  $419,500

Less: Write Off Account         $7,700    

Net Income                             $52,800

If Allowance Method Is Used  

Sales                                                                 $480,000

Less: Expenses                                                $419,500

Less: Write Off Account (1.5% of 480,000)    $7,200

Net Income                                                       $53,300

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