Answer:
a.1) <u>year 1</u>
Issued $10,000 of common stock for cash.
Dr cash 10,000
Cr common stock 10,000
Provided $78,000 of services on account.
Dr accounts receivable 78,000
Cr service revenue 78,000
Provided $36,000 of services and received cash.
Dr cash 36,000
Cr service revenue 36,000
Collected $69,000 cash from accounts receivable.
Dr cash 69,000
Cr accounts receivable 69,000
Paid $38,000 of salaries expense for the year.
Dr wages expense 38,000
Cr cash 38,000
Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
Dr bad debt expense 450
Cr accounts receivable 450
Closed the revenue account. Closed the expense account.
Dr service revenue 114,000
Cr income summary 114,000
Dr income summary 38,450
Cr wages expense 38,000
Cr bad debt expense 450
Dr income summary 75,550
Cr retained earnings 75,550
<h2>b.1) income statement year 1</h2>
Service revenue $114,000
Expenses:
- Wages $38,000
- Bad debt $450 <u>($38,450)</u>
Net income $75,550
<h2>balance sheet year 1</h2>
Assets:
Cash $77,000
Accounts receivable $8,550
total assets $85,550
Equity:
Common stock $10,000
Retained earnings $75,550
total equity $85,550
<h2>statement of cash flows year 1</h2>
Cash flows form operating activities:
Net income $75,550
adjustments:
Increase in accounts receivable <u>($8,550)</u>
net cash from operating activities $67,000
Cash flow from financing activities:
Common stocks issued <u>$10,000</u>
Net cash increase $77,000
beginning cash balance <u> $0</u>
Ending cash balance $87,000
a.2) <u>Year 2:</u>
Wrote off an uncollectible account for $650.
Dr bad debt expense 650
Cr accounts receivable 650
Provided $88,000 of services on account.
Dr accounts receivable 88,000
Cr service revenue 88,000
Provided $32,000 of services and collected cash.
Dr cash 32,000
Cr service revenue 32,000
Collected $81,000 cash from accounts receivable.
Dr cash 81,000
Cr accounts receivable 81,000
Paid $65,000 of salaries expense for the year.
Dr wages expense 65,000
Cr cash 65,000
Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
Dr bad debt expense 745
Cr accounts receivable 745
<h2>b.2) income statement year 2</h2>
Service revenue $120,000
Expenses:
- Wages $65,000
- Bad debt $1,395 <u>($38,450)</u>
Net income $53,605
<h2>balance sheet year 2</h2>
Assets:
Cash $125,000
Accounts receivable $14,155
total assets $139,155
Equity:
Common stock $10,000
Retained earnings $129,155
total equity $139,155
<h2>statement of cash flows year 2</h2>
Cash flows form operating activities:
Net income $53,605
adjustments:
Increase in accounts receivable <u>($5,605)</u>
net cash from operating activities $48,000
Net cash increase $48,000
beginning cash balance <u> $77,000</u>
Ending cash balance $125,000
c) net realizable value of accounts receivable at year 1 = $8,550
net realizable value of accounts receivable at year 2 = $14,155
