Question

Problem 5-31 Comprehensive accounting cycle problem (uses percent of revenue allowance method) LO 5-1, 5-4, 5-5 The following trial balance was prepared for Tile, Etc., Inc. on December 31, 2017, after the closing entries were posted: Account Title Cash Accounts receivable Allowance for doubtful accounts Inventory Accounts payable Common stock Retained earnings $175. eee 138,000 $ 24,500 451, eee 1e8,eee 515, eee 116, see Tile, Etc. had the following transactions in 2018 1. Purchased merchandise on account for $645.000 2. Sold merchandise that cost $485,000 for $1,020,000 on account 3. Sold for $310.000 cash merchandise that had cost $186,000 4. Sold merchandise for $255,000 to credit card customers. The merchandise had cost $122,000. The credit card company charges a 3 percent fee. 5. Collected $750,000 cash from accounts receivable. 6. Paid $675.000 cash on accounts payable 7. Paid $158.000 cash for selling and administrative expenses 8. Collected cash for the full amount due from the credit card company (see Item 4). 9. loaned $63,000 to J. Parks. The note had an 8 percent interest rate and a one-year term to maturity 10. Wrote off $8.800 of accounts as uncollectible. 11. Made the following adjusting entries (a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account. (b) Recorded seven months of accrued interest on the note at December 31, 2018 (see item 9).

Answer 1

Tile Etc. Inc. Horizontal Statement Model Event Bal. Cash 175000 Notes Interest Accounts Common + Receivable + Receivable = Payable + Stock 108000 + 515000 645000 Retained + Earnings + 116500 Accounts Merchandise + Receivable - Allowance + Inventory + 138000 - 24500 + 451000 645000 + 1020000 -485000 + + + + + + + + + + + + 310000 + + + + + 1020000 Sales on account + -485000 Cost of goods sold + 310000 Sales in cash + -186000 Cost of goods sold + 255000 Credit card sales + -122000 Cost of goods sold + -186000 + + + + 255000 + + + + + -122000 + + + -750000 + + + + + + + -675000 + 750000 + -675000 - 158000 + 247350 + -63000 + + + + + -158000 Selling and admin expense -7650 Credit card fees -255000 + + + + + + 63000 + + -8800 + + + + 3992 + + + + + + + + -8800 3992 2940 740982 Uncollectibles written off Bad Debts Interest revenue + + + + 11b. Bal. 2940 2940 586350 + 399200 - 28492 + 303000 + 63000 + = 78000 + 515000 Bad Debts = (138000 + 1020000-750000 - 8800 ) x 1% = 3992 Interest Receivable = 63000 x 8% x 7/12 = 2940

1585000 -793000 792000 Statement of Income For the period ending 31.12.2017 Sales Cost of goods sold Gross Profit Operating expenses: Selling and admin expense 158000 Credit card fees 7650 Bad Debts 3992 Operating Income Non Operating Item: Interest revenue Net Income 169642 622358 2940 625298 Statement of Changes in Stockholders Equity For the period ending 31.12.2017 Beginning Common Stock 515000 Plus:Stock issued Ending Common Stock 515000 Beginning Retained Earnings Plus:Net Income 625298 Ending Retained Earnings 741798 Total Stockholders Equity 1256798

Balance sheet As at 31.12.2017 Assets Current Assets Cash Notes Receivable Interest Receivable Accounts Receivable Allowance Merchandise Inventory Total Assets Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Liabilities 586350 Accounts Payable 78000 63000 2940 399200 Shareholders Equity -19692 Common Stock 515000 303000 1334798 Retained Earnings 741798 1256798 1334798 Total Liabilities & Equity 1334798 625298 Statement of Cashflows For the period ending 31.12.2017 Cashflow from Operating Activity Net Income Adjustments: Increase in Notes Receivable -63000 Increase in Interest Receivable -2940 Increase in Accounts Receivable -266008 Decrease in Inventory 148000 Decrease in Accounts Payable -30000 Cash generated from Operating Activity -213948 411350 Cashflow from Investing Activity Cash generated from Investing Activity Cashflow from Financing Activity Cash generated from Investing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 411350 175000 586350