Question

During the first year of operation, 2018, Direct Service Co. recognized $320,000 of service revenue on account. At the end of 2018, the accounts receivable balance was $60,000. For this first year in business the owner believes uncollectible accounts expense will be about 3 percent of sales on account Required a. What amount of cash did Direct Service collect from accounts receivable during 2018? b. Assuming Direct Service uses the allowance method to account for uncollectible accounts, what amount should Direct Service record as uncollectible accounts expense for 2018? c. What is the net realizable value of receivables at the end of 2018? d. Show the effects of the given transactions on the financial statements by recording the appropriate amounts in a horizantal statements model like the one shown here. In the Cash Flow column, indicate whether the iter is an operating activity (OA), investing activity (IA), or financing activity (FA). For events that have no effect, leave the cell blank. Complete this question by entering your answers in the tabs below. Req A to C Req D Show the effects of the given transactions on the financial statements by recording the appropriate amounts in a horizantal statements model like the one shown here. In the Cash Flow column, whether the item is an operating activity (OA), investing activity (IA), ar financing activity (FA). For events that have no effect, leave the cell blank. (Not every cell will require entry. Enter any d to account balances and cash outflows with a minus sign.) Sho DIRECT SERVICE CO. Horizontal Statements Model Income Statement Assets Equity Statement of Cash Event Liabilities + Net Flow Revenue Expense Retained Earnings Accounts Income Cash Allowance Receivable 320,000 320,000 320,000 (260,000) 320,000 1. Sales 260,000 OA 260,000 2. Cash Collected (9,600) (9,600) 9,600 3. Uncollectible Accounts (9,600) + П 0+ 9,600 Totals 260,000 50.400 310,400 320,000 310,400 260,000

Answer 1

Answer A  Cash from direct sales received during the year = $260000

Calculated as

Amount received = Credit sales - ending balance of receivable = $320000-$60000 = $260000

Answer B Uncollectible expense = $9600

Calculated as

Allowances for uncollectibles expense = 3% of Sales on account = 3% x $320000 = $9600

Answer C. Answer c is already correct so reproduced below

DIRECT SERVICE CO. Horizontal Statements Model Income Statement Assets Equity Statement of Cash Event Liabilities + Net Flow Revenue Еxpense Accounts + Retained Income Cash Allowance Receivable Earnings 320,000 320,000 1. Sales 320,000 320,000 2. Cash Collected 260,000 + 260,000 OA (260,000) + 3. Uncollectible Accounts (9,600) (9,600) 9,600 (9,600) Totals 260,000 П1+ 50.400 310,400 320,000 9,600 310,400 260,000