Question

Leach Inc. experienced the following events for the first two years of its operations: Year 1: 1. Issued $16,000 of common stock for cash. 2. Provided $84,600 of services on account. 3. Provided $42,000 of services and received cash. 4. Collected $75,000 cash from accounts receivable. 5. Paid $44,000 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 7. Closed the revenue account 8. Closed the expense account. Year 2: 1. Wrote off an uncollectible account for $720. 2. Provided $94,000 of services on account. 3. Provided $38,000 of services and collected cash. 4. Collected $87,000 cash from accounts receivable. 5. Paid $71,000 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.

Answer 1

Leach Inc. Year 1 126600 Journal Enteries Trans. Particulars Cash a/c Dr. To Common Stock (Common stock issued) Debit in $ Credit in $ 16000 16000 Income Statement For the period ending Year 1 Service Revenue Less: Salaries Expense Bad debts Expense Net Income 44000 480 44480 82120 84600 Accounts Receivable a/c Dr. To Service Revenue (Services on account) 84600 42000 Cash a/c Dr. To Service Revenue (Services on account) Statement of Changes in Stockholders Equity For the period ending December 31 Year 1 Beginning Common Stock 0 Add:Additional Capital 16000 Ending Common Stock 16000 Beginning Retained Earnings Add :Net Income 82120 Ending Retained Earnings 82120 Total Stockholders Equity 98120 42000 4 Dr. 75000 Cash a/c To Accounts Receivable (Cash from debtors) 75000 Dr. 44000 Salaries Expense a/c To Cash (Salary paid) 44000 Balance Sheet As at 31.12.Year 1 Assets Current Assets Cash Accounts Receivable Total Assets 89000 9120 98120 98120 6 480 480 Bad debts Expense a/c To Allowance for doubtful accounts (bad debts estimated) 84600 - 75000 = 9600 x 5% = 480 Liabilities Stockholders Equity Common Stock Retained Earnings Total Liabilities & Equity 16000 82120 98120 98120