Problem 7-23B Missing Information
The following information comes from the accounts of Legoria Company:
| Account Title | Beginning Balance | Ending Balance |
|---|---|---|
| Accounts Receivable | $36,000 | $32,000 |
| Allowance for Doubtful Accounts | $2,000 | $2,200 |
| Notes Receivable | $50,000 | $50,000 |
| Interest Receivable | $2,000 | $5,000 |
Required
a. There were $160,000 in sales on account during the accounting period. Write-offs of uncollectible accounts were $1,200. What was the amount of cash collected from accounts receivable? What amount of uncollectible accounts expense was reported on the income statement? What was the net realizable value of receivables at the end of the accounting period?
b. The note has a 6 percent interest rate and 24 months to maturity. What amount of interest revenue was recognized for the year? How much cash was collected for interest?
Problem 7-24B Accounting for Credit Card Sales and Uncollectible Accounts: Percent of Receivables Allowance Method
Diamond Supply Company had the following transactions in Year 1:
- Acquired $50,000 cash from the issue of common stock.
- Purchased $120,000 of merchandise for cash in Year 1.
- Sold merchandise that cost $95,000 for $180,000 during the year under the following terms:
- $50,000 Cash sales
- $115,000 Credit card sales (Credit card company charges a 3 percent service fee.)
- $15,000 Sales on account
- Collected all the amount receivable from the credit card company.
- Collected $11,300 of accounts receivable.
- Paid selling and administrative expenses of $51,500.
- Determined that 5 percent of the ending accounts receivable balance would be uncollectible.
Required
a. Show the effects of each of the transactions on the elements of the financial statements, using a horizontal statements model like the one shown next. Use + for increase, − for decrease, and NA for not affected. The first transaction is entered as an example. (Hint: Closing entries do not affect the statements model.)
b. Prepare general journal entries for each of the transactions and post them to T-accounts.
c. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.
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