During the first year of operation, Year 1, Home Renovation recognized $261,000 of service revenue on account. At the end of Year 1, the accounts receivable balance was $46,300. 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 Home Renovation during Year 1?
b. Assuming the use of an allowance system to account for uncollectible accounts, what amount should Home Renovation record as uncollectible accounts expense in Year 1?
c. Show the effects of the following three transactions on the financial statements by recording the appropriate amounts in a horizontal statements model like the one shown next. In the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA for not affected.
(1) Record service revenue on account.
(2) Record collection of accounts receivable.
(3) Record the entry to recognize uncollectible accounts expense.

d. What is the net realizable value of receivables at the end of Year 1?

Transcribed Image Text:

Balance Sheet Statement of Cash Income Statement Assets Liab. + Equity Flows Net Realizable Value of Recelvables Net Inc. Cash Exp. Rev.