Effect of recognizing uncollectible accounts expense on financial statements: percent of revenue allowance method
Big A’s Auto Service was started on January 1, 2012. The company experienced the following events during its first two years of operation.
Events Affecting 2012
1.Provided $30,000 of repair services on account.
2.Collected $25,000 cash from accounts receivable.
3.Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the service revenue on account.
Events Affecting 2013
1.Wrote off a $280 account receivable that was determined to be uncollectible.
2.Provided $35,000 of repair services on account.
3.Collected $31,000 cash from accounts receivable.
4.Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the service revenue on account.
Required
a.Organize the transaction data in accounts under an accounting equation.
b.Determine the following amounts:
(1)Net income for 2012.
(2)Net cash flow from operating activities for 2012.
(3)Balance of accounts receivable at the end of 2012.
(4)Net realizable value of accounts receivable at the end of 2012.
c.Repeat Requirement b for the 2013 accounting period.
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