Question

Roth Service Co. experienced the following transactions for 2018, its first year of operations: Provided $80,000 of services on account. Collected $48,400 cash from accounts receivable. Paid $28,000 of salaries expense for the year. Roth 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 $ 16,800 0.01 0-30 5,100 0.05 31-60 4,000 0.10 61-90 2,000 0.30 Over 90 days 3,700 0.50 Required Organize the transaction data in accounts under an accounting equation. Prepare an income statement for Roth Service Co. for 2018. What is the net realizable value of the accounts receivable at December 31, 2018

Answer 1

Answer and Explanation:

a. The preparation of income statement is shown below:-

                               Income Statement

Service revenue                               $80,000

operating expenses  

Salary expenses           $28,000

Uncollectible accounts

expense                        $3,273

Total operating expense                   $31,273

Net income                                         $48,727

Working Note :-

Days       Amount     Percentage     Allowance balance

Current   $16,800       0.01                  $168

0-30         $5,100        0.05                 $255

31-60       $4,000        0.10                  $400

61-90       $2,000        0.30                 $600

Over 90

days         $3,700       0.50                  $1,850

Total        $31,600                                $3,273

b. The computation of net realizable value of the accounts receivable is shown below:-

Net realizable value = Accounts receivable - Allowance for doubtful accounts

= ($80,000 - $48,400) - $3,273

= $31,600 - $3,273

= $28,327