During the first year of operation, 2012, Wells Appliance Co. recognized \(\$ 300,000\) of service revenue on account. At the end of 2012, the accounts receivable balance was \(\$ 58,000\). For this first year in business, the owner believes uncollectible accounts expense will be about 1 percent of sales on account.

Required

a. What amount of cash did Wells collect from accounts receivable during 2012?

b. Assuming Wells uses the allowance method to account for uncollectible accounts, what amount should Wells record as uncollectible accounts expense for \(2012 ?\)

c. Prepare the general journal entries to:
(1) Record service revenue on account.
(2) Record collections from accounts receivable.
(3) Record the entry to recognize uncollectible accounts expense.

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

e. Show the effects of the transactions in Requirement \(c\) on the financial statements by recording the appropriate amounts in a horizontal statements model like the one shown here. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA for not affected.

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Assets Cash + Accts. Rec. - Allow. = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flow