Exercise 7-7B Effect of recognizing uncollectible accounts on the financial statements: percent of receivables allowance method
Juno Inc. experienced the following events for the first two years of its operations:
Year 1:
- Issued $5,000 of common stock for cash.
- Provided $80,000 of services on account.
- Provided $22,000 of services and received cash.
- Collected $65,000 cash from accounts receivable.
- Paid $24,000 of salaries expense for the year.
- Adjusted the accounting records to reflect uncollectible accounts expense for the year. Juno estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
Year 2:
- Wrote off an uncollectible account of $620.
- Provided $95,000 of services on account.
- Provided $15,000 of services and collected cash.
- Collected $90,000 cash from accounts receivable.
- Paid $35,000 of salaries expense for the year.
- Adjusted the accounts to reflect uncollectible accounts expense for the year. Juno estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
Required:
a. Record the Year 1 events in general journal form and post them to T-accounts.
b. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.
c. What is the net realizable value of the accounts receivable at December 31, Year 1?
d. Repeat Requirements a, b, and c for Year 2.
Exercise 7-8B Accounting for uncollectible accounts: percent of receivables allowance method
Pollard Service Co. experienced the following transactions for Year 1, its first year of operations:
- Provided $86,000 of services on account.
- Collected $72,000 cash from accounts receivable.
- Paid $39,000 of salaries expense for the year.
- Pollard adjusted the accounts using the following information from an accounts receivable aging schedule:
| Number of Days Past Due | Amount | Percent Likely to Be Uncollectible | Allowance Balance |
|---|---|---|---|
| Current | $7,500 | 0.01 | |
| 0–30 | $2,000 | 0.05 | |
| 31–60 | $1,500 | 0.10 | |
| 61–90 | $1,000 | 0.30 | |
| Over 90 days | $2,000 | 0.50 |
Required:
a. Record the above transactions in general journal form and post them to T-accounts.
b. Prepare the income statement for Pollard Service Co. for Year 1.
c. What is the net realizable value of the accounts receivable at December 31, Year 1?
Exercise 7-9B Accounting for uncollectible accounts: direct write-off method
Applied Business Systems has a small number of 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, Applied Business Systems earned $46,000 of cash revenue and $9,000 of revenue on account. Cash operating expenses were $32,100. After numerous attempts to collect a $325 account receivable from J.C. Mims, the account was determined to be uncollectible in Year 2.
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 next. 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 Applied Business Systems report on the Year 1 income statement?
c. Prepare the general journal entries for the four accounting events listed in Requirement a.
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