Analyzing financial statement effects of accounting for uncollectible accounts using the p...

Analyzing financial statement effects of accounting for uncollectible accounts using the percent of revenue allowance method

Gray Bros. uses the allowance method to account for bad debts expense. Gray experienced the following four events in 2012.

1.Recognition of $48,000 of service revenue on account.

2.Collection of $42,000 cash from accounts receivable.

3. Determination that $300 of its accounts were not collectible and wrote off these receivables.

4.Recognition of uncollectible accounts expense for the year. Gray estimates that bad debts expense will be 2 percent of its service revenue.

Required

Show the effect of each of these events on the elements of the financial statements, using a horizontal statements model like the following one. Use + for increase, − for decrease, and NA for not affected. In the cash flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).