Question

Saved Exercise 7-4A Effect of recognizing uncollectible accounts expense on financial statements: percent of revenue allowance method LO 7-1 Rosie Dry Cleaning was started on January 1, Year 1. It experienced the following events during its first two years of operation: Events Affecting Year 1 1. Provided $26,470 of cleaning services on account. 2. Collected $21176 cash from accounts receivable. 3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account. Events Affecting Year 2 1. Wrote off a $199 account receivable that was determined to be uncollectible. 2. Provided $30,890 of cleaning services on account. 3. Collected $27,338 cash from accounts receivable. 4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account Required a. Record the events for Year 1 and Year 2 in T-accounts b. Determine the following amounts: (1) Net income for Year 1. (2) Net cash flow from operating activities for Year 1. (3) Balance of accounts receivable at the end of Year 1 (4) Net realizable value of accounts receivable at the end of Year 1 c. Repeat Requirements for the Year 2 accounting period. < Prex 2 of 6 Il Next >

Answer 1

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Rosie Dry Cleaning						T accounts
Year 1 Journal Entries						Cash
No.	Account	Debit $	Credit $			Date	Account	Debit $	Date	Account	Credit $
1	Accounts Receivable	26,470.00				Year 1	Accounts Receivable	21,176.00	Year 1	Closing balance	21,176.00
	Service Revenue		26,470.00					21,176.00			21,176.00
						Year 2	Opening balance	21,176.00	Year 2	Closing balance	48,514.00
2	Cash	21,176.00				Year 2	Accounts Receivable	27,338.00
	Accounts Receivable		21,176.00					48,514.00			48,514.00
3	Uncollectible Account Expense	264.70		1 % of $ 26,470.		Accounts Receivable
	Allowance for uncollectible Account		264.70			Date	Account	Debit $	Date	Account	Credit $
						Year 1	Service Revenue	26,470.00	Year 1	Cash	21,176.00
Year 2 Journal Entries									Year 1	Closing balance	5,294.00
No.	Account	Debit $	Credit $					26,470.00			26,470.00
1	Allowance for uncollectible account	199.00				Year 2	Opening balance	5,294.00	Year 2	Cash	27,338.00
	Accounts Receivable		199.00			Year 2	Service Revenue	30,890.00	Year 2	Allowance for uncollectible account	199.00
									Year 2	Closing balance	8,647.00
2	Accounts Receivable	30,890.00						36,184.00			36,184.00
	Service Revenue		30,890.00
						Uncollectible Account Expense
3	Cash	27,338.00				Date	Account	Debit $	Date	Account	Credit $
	Accounts Receivable		27,338.00			Year 1	Allowance for uncollectible Account	264.70	Year 1	Profit & Loss account	264.70
								264.70			264.70
Calculation of Bad Deb Expense for Year 2			Amount $			Year 2	Allowance for uncollectible Account	243.20	Year 2	Profit & Loss account	243.20
	Opening balance in Allowance for uncollectible account		264.70					243.20			243.20
	Bad Debt incurred in year 2		199.00
	Balance before adjustment		65.70			Allowance for uncollectible account
	Allowance for uncollectible account for year 2		308.90	1 % of $ 30,890.		Date	Account	Debit $	Date	Account	Credit $
	Bad Debt Expense for year 2		243.20			Year 1	Closing balance	264.70	Year 1	Uncollectible Account Expense	264.70
								264.70			264.70
Year 2 Journal Entries						Year 2	Accounts Receivable	199.00	Year 2	Opening balance	264.70
No.	Account	Debit $	Credit $			Year 2	Closing balance	308.90	Year 2	Uncollectible Account Expense	243.20
4	Uncollectible Account Expense	243.20						507.90			507.90
	Allowance for uncollectible Account		243.20
						Service Revenue
	Incomes Statement	Year 1	Year 2			Date	Account	Debit $	Date	Account	Credit $
	Service Revenue	26,470.00	30,890.00			Year 1	Profit & Loss account	26,470.00	Year 1	Accounts Receivable	26,470.00
	Less: Uncollectible Account Expense	264.70	243.20					26,470.00			26,470.00
	Net income	26,205.30	30,646.80			Year 2	Profit & Loss account	30,890.00	Year 2	Accounts Receivable	30,890.00
								30,890.00			30,890.00
		Year 1	Year 2
	Net income	26,205.30	30,646.80			Retained Earnings
	Net cash flow from operating activities	21,176.00	27,338.00			Date	Account	Debit $	Date	Account	Credit $
	(cash received from accounts receivable)					Year 1	Closing balance	26,205.30	Year 1	Profit & Loss account	26,205.30
	Accounts receivable at the end of Year	5,294.00	8,846.00					26,205.30			26,205.30
	(This is before adjustment of Allowance for uncollectible Account)								Year 2	Opening balance	26,205.30
	Net Accounts receivable at the end of Year	5,029.30	8,647.00			Year 2	Closing balance	56,852.10	Year 2	Accounts Receivable	30,646.80
	(This is after adjustment of Allowance for uncollectible Account)							56,852.10			56,852.10