Problem 7-25B Effect of Transactions on the Elements of Financial Statements

Accounting for Receivables

Problem 7-25B Effect of Transactions on the Elements of Financial Statements

Required

Identify each of the following independent transactions as an asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also, explain how each event affects assets, liabilities, stockholders’ equity, net income, and cash flow by placing a + for increase, − for decrease, or NA for not affected under each of the categories. The first event is recorded as an example.

a. Sold merchandise at a price above cost. Accepted payment by credit card. The credit card company charges a service fee. The receipts have not yet been forwarded to the credit card company.
b. Sold land for cash at its cost.
c. Paid cash to satisfy salaries payable.
d. Submitted receipts to the credit card company (see item a) and collected cash.
e. Loaned Carl Maddox cash. The loan had a 5 percent interest rate and a one-year term to maturity.
f. Paid cash to creditors on accounts payable.
g. Accrued three months’ interest on the note receivable (see item e).
h. Provided services for cash.
i. Paid cash for salaries expense.
j. Provided services on account.
k. Wrote off an uncollectible account (use direct write-off method).
l. Collected cash from customers paying their accounts.
m. Recovered an uncollectible account that was previously written off (assume direct write-off method was used).
n. Paid cash for land.
o. Paid cash for other operating expenses.

Problem 7-26B Comprehensive Accounting Cycle Problem (Uses Percent of Revenue Allowance Method)

The following trial balance was prepared for Village Cycle Sales and Service on December 31, Year 1, after the closing entries were posted:

Village Cycle had the following transactions in Year 2:

1. Purchased merchandise on account for $260,000.
2. Sold merchandise that cost $243,000 on account for $340,000.
3. Performed $80,000 of services for cash.
4. Sold merchandise for $60,000 to credit card customers. The merchandise cost $41,250. The credit card company charges a 5 percent fee.
5. Collected $348,000 cash from accounts receivable.
6. Paid $265,000 cash on accounts payable.
7. Paid $115,000 cash for selling and administrative expenses.
8. Collected cash for the full amount due from the credit card company (see item 4).
9. Loaned $50,000 to Lee Supply. The note had a 9 percent interest rate and a one-year term to maturity.
10. Wrote off $830 of accounts as uncollectible.
11. Made the following adjusting entries:
    (a) Recorded three months’ interest on the note at December 31, Year 2 (see item 9).
    (b) Estimated uncollectible accounts expense to be .5 percent of sales on account.

Required

Prepare general journal entries for these transactions, and post the entries to T-accounts. Also, prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for Year 2.