Paulineâ??s Pottery has always used the direct write-off method to account for uncollectibles. The..

Pauline’s Pottery has always used the direct write-off method to account for uncollectibles. The company’s 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 = $14,000The 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 Pauline’s 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 Pauline’s 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.

 

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