Question

Roth Service Co. experienced the following transactions for 2018, its first year of operations:

1. Provided $68,000 of services on account.
2. Collected $38,500 cash from accounts receivable.
3. Paid $28,000 of salaries expense for the year.
4. 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	$	15,400		0.01
0-30		5,400		0.05
31-60		3,900		0.10
61-90		1,100		0.30
Over 90 days		3,700		0.50

Required

1. Organize the transaction data in accounts under an accounting equation.
2. Prepare an income statement for Roth Service Co. for 2018.
3. What is the net realizable value of the accounts receivable at December 31, 2018?

ROTH SERVICE CO. Horizontal Statements Model Event Assets Accounts Receivable Liabilities Equity Retained Earnings Accounts Titles for Retained Earnings Cash Allowance + + + + + + + + Bal. + +

Answer 1

1.

Event Cash Horizontal Statements Model Assets Accounts Liabilities -Allowances receivable $ 68,000 $ 38,500 - Equity Retained Account Titles for earnings Retained earnings $ 68,000 Service revenue + + 2 3 $ 38,500 + $ 28,000 + + + $ 2,994 $ 2,994 $ 28,000 Salaries expense -$ 2,994 Bad debt expense $ 37,006 Bal. $ 10,500+ $ 29,500 - +

Working note:

No. of days past due Amount % likely to be uncollectible Allowance bal. Current $ 15,400 0.01 $ 154 0-30 5,400 0.05 $ 2700 31-60 3,900 0.10 $ 390 61-90 1,100 0.30 $ 330 Over 90 days 3,700 $ 1,850 Bad debt expense $ 2,994 0.500

2.

ROTH SERVICE CO. Income statement For the year ended December 31, 2018 Service revenue 68,000 Less: Operating expense Salaries expense 28,000 Bad debt expense 2,994 Total operating expense 30,994 Net income 37,006

3.

Net realizable value of accounts receivable at Dec 31, 2018 = $29,500 - 2,994 = $26,506.