Question

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Leach Inc. experienced the following events for the first two years of its operations:

Year 1:

1. Issued $10,000 of common stock for cash.
2. Provided $78,000 of services on account.
3. Provided $36,000 of services and received cash.
4. Collected $69,000 cash from accounts receivable.
5. Paid $38,000 of salaries expense for the year.
6. 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.

Year 2:

1. Wrote off an uncollectible account for $650.
2. Provided $88,000 of services on account.
3. Provided $32,000 of services and collected cash.
4. Collected $81,000 cash from accounts receivable.
5. Paid $65,000 of salaries expense for the year.
6. 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.

b. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.

Reg B Inc Stmt Req B Stmt SE Req B Bal Sheet Req B Stmt Cash Flows Prepare an income statement for Year 1. LEACH INC. Income Statement For the Year Ended December 31, Year 1 Operating expenses Total operating expenses < Req B Inc Stmt Req B Stmt SE >

Answer 1

Leach Inc. Accounting Equation For the Year 1 = Liabilities + Assets + Accounts + Receivable - Allowance Accounting Titles for Retained Earnings Event + Cash 10000 Equity Common Retained Stock + Earnings 10000 + 78000 36000 + + 78000 + Service Revenue Service Revenue + 36000 69000 -38000 -69000 + + + Salaries Expense Bad Debts estimated + -38000 -810 75190 810 810 Totals 77000 + 9000 - + + 10000 85190 85190 9000 x 5% = 810

114000 Statement of Income For the Year 1 Service Revenue Less:Operating Expense Salaries Expense Bad Debts Expense Total Operating Expense Net Income 38000 810 38810 75190 Statement of Changes in Stockholders Equity For the Year 2 Beginning Common Stock 10000 Plus:Common Stock issued Ending Common Stock 10000 Beginning Retained Earnings Plus:Net Income Ending Retained Earnings 75190 75190 Statement of Cashflows For the Year 2 Cashflow from Operating Activity Net Income Adjustments: Increase in Accounts Receivable Cash generated from Operating Activity 75190 -8190 -8190 67000 Cashflow from Investing Activity Cash generated from Investing Activity 0 10000 Cashflow from Financing Activity Common Stock issued Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 10000 77000 77000

Balance sheet As at Year 2 Assets Cash Accounts Receivable 77000 8190 Total Assets 85190 0 Liabilities Stockholders Equity Common Stock Retained Earnings 10000 75190 Total Liabilities & Stockholders Equity 85190 Accounts Receivable Net Realisable Value = 9000 - 810 = 8190