Determination of account balances—percent of receivables allowance method of accounting fo...

Determination of account balances—percent of receivables allowance method of accounting for uncollectible accounts

During the first year of operation, 2012, Martin’s Appliance recognized $292,000 of service revenue on account. At the end of 2012, the accounts receivable balance was $57,400. Even though this is his first year in business, the owner believes he will collect all but about 4 percent of the ending balance.

Required

a.What amount of cash was collected by Martin’s during 2012?

b.Assuming the use of an allowance system to account for uncollectible accounts, what amount should Martin record as uncollectible accounts expense in 2012?

c.What is the net realizable value of receivables at the end of 2012?

d.Show the effect of the above transactions on the financial statements by recording the appropriate amounts in a horizontal statements model like the one shown here. When you record amounts in the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The letters NA indicate that an element is not affected by the event.