Exercise 7-4A Effect of recognizing uncollectible accounts expense on financial statements: percent of revenue allowance method LO 7-1

Rosie Dry Cleaning was started on January 1, Year 1. It experienced the following events during its first two years of operation: Events Affecting Year 1

1. Provided $27,330 of cleaning services on account.
2. Collected $21,864 cash from accounts receivable.
3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Events Affecting Year 2

1. Wrote off a $205 account receivable that was determined to be uncollectible.
2. Provided $31,894 of cleaning services on account.
3. Collected $28,226 cash from accounts receivable.
4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Required a. Record the events for Year 1 and Year 2 in T-accounts. b. Determine the following amounts:

1. (1) Net income for Year 1.
2. (2) Net cash flow from operating activities for Year 1.
3. (3) Balance of accounts receivable at the end of Year 1.
4. (4) Net realizable value of accounts receivable at the end of Year 1.

c. Repeat Requirements b for the Year 2 accounting period.

Cash					Retained Earnings
Year 1					Beg. Bal.
Bal.					End. Bal.
Year 2
End. Bal.
Accounts Receivable					Service Revenue
Year 1					Year 1
Bal.					Bal.
Year 2					Year 2
End. Bal.					End. Bal.
Allowance for Doubtful Accounts					Uncollectible Accounts Expense
Year 1					Year 1
Bal.					Bal.
Year 2					Year 2
End. Bal.					End. Bal.

• Determine the following amounts: (Round your intermediate calculations to nearest whole dollar.) (1) Net income for Year 1. (2) Net cash flow from operating activities for Year 1. (3) Balance of accounts receivable at the end of Year 1. (4) Net realizable value of accounts receivable at the end of Year 1.

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  (1)	Net income for Year 1
  (2)	Net cash flow from operating activities for Year 1
  (3)	Balance of accounts receivable at the end of Year 1
  (4)	Net realizable value of accounts receivable at the end of Year 1

Repeat Requirements b for the Year 2 accounting period. (Round your intermediate calculations to nearest whole dollar.)

(1)	Net income for Year 2
(2)	Net cash flow from operating activities for Year 2
(3)	Balance of accounts receivable at the end of Year 2
(4)	Net realizable value of accounts receivable at the end of Year 2