Exercise 7-4B

Effect of recognizing uncollectible accounts expense on financial statements: percent of revenue allowance method

pciable Auto Service was started on January 1, Year 1. The company experienced the following events

during its first two years of operation:

Events Affecting Year 1

1. Provided $52,000 of repair services on account.
2. Collected $32,000 cash from accounts receivable.

4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would he 2 percent of the service revenue on account.

Events Affecting Year 2

1. Wrote off a $320 account receivable that was determined to be uncollectible.
2. Provided $65,000 of repair services on account.
3. Collected $66,000 cash from accounts receivable.
4. Adjusted the accounting records to reflect ne estimate that uncollectible accounts expense would be 1 percent of the service revenue on account. Required
   1. Organize the transaction data in accounts under an accounting equation.
   2. Determine the following amounts:
   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.

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

Exercise 7-4B Effect of recognizing uncollectible accounts expense on financial statements: percent of revenue allowance method pelable Auto Service was started on January 1, Year 1. The company experienced the following events juring its first two years of operation: Events Affecting Year 1 1. Provided $52,000 of repair services on account, 2. collected $32,000 cash from accounts receivable. 3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would Events Affecting Year 2 1. Wrote off a $320 account receivable that was determined to be uncollectible. 2. Provided $65,000 of repair services on account. 3. Collected $66,000 cash from accounts receivable. 4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be I 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 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. c. Repeat Requirements a and b for the Year 2 accounting period. Exercise 7-4B. B. 1 . 2. 3. 4. C. \begin{tabular}{|l|l|l|l|l|l|l|} \hline Event & \multicolumn{2}{|c|}{ Assets } & Lab & \multicolumn{2}{|c|}{ Equity } & Acct Title \\ \hline Year 2 & Cash & Accts Rec & & Com Stock & Ret Earn & \\ \hline 1. & & & & & & \\ \hline 2. & & & & & \\ \hline 3. & & & & & \\ \hline Balance & & & & & & \\ \hline \end{tabular} 1. 2. 3. 4