Reference no: EM131801562

Problem

At the beginning of 2018, Brad's Heating & Air (BHA) has a balance of $24,300 in accounts receivable. Because BHA is a privately owned company, the company has used only the direct write-off method to account for uncollectible accounts. However, at the end of 2018, BHA wishes to obtain a loan at the local bank, which requires the preparation of proper financial statements. This means that BHA now will need to use the allowance method. The following transactions occur during 2018 and 2019.

a. During 2018, install air conditioning systems on account, $173,000.
b. During 2018, collect $168,000 from customers on account.
c. At the end of 2018, estimate that uncollectible accounts total 10% of ending accounts receivable.
d. In 2019, customers' accounts totaling $6,300 are written off as uncollectible.

1. Record each transaction using the allowance method

2. Record each transaction using the direct write-off method

3. Calculate the difference in net income (before taxes) in 2018 and 2019 between the two methods.