Accounting for uncollectible accounts: percent of receivables allowance method

Accounting for Receivables

Exercise 7-8A Accounting for uncollectible accounts: percent of receivables allowance method

Vulcan Service Co. experienced the following transactions for Year 1, its first year of operations:

1. Provided $91,000 of services on account.
2. Collected $72,000 cash from accounts receivable.
3. Paid $36,000 of salaries expense for the year.
4. Adjusted the accounts using the following information from an accounts receivable aging schedule:

Required

a. Record the above transactions in general journal form and post to T-accounts.

b. Prepare the income statement for Vulcan Service Co. for Year 1.

c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Exercise 7-9A Accounting for uncollectible accounts: direct write-off method

Patel Service Co. does make a few sales on account but is mostly a cash business. Consequently, it uses the direct write-off method to account for uncollectible accounts. During Year 1, Patel Service Co. earned $35,000 of cash revenue and $4,500 of revenue on account. Cash operating expenses were $19,000. After numerous attempts to collect a $120 account receivable from Sam Stephens, the account was determined to be uncollectible in Year 1.

Required

a. Show the effects of (1) cash revenue, (2) revenue on account, (3) cash expenses, and (4) write-off of the uncollectible account on the financial statements using a horizontal statements model like the one shown here. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element is not affected by the event.

b. What amount of net income did Patel Service Co. report on the Year 1 income statement?

c. Prepare the general journal entries for the four accounting events listed in Requirement a.