Exercise 7-7A Effect of recognizing uncollectible accounts on the financial statements: percent of receivables allowance method LO 7-2 [The following information applies to the questions displayed below.) Leach Inc. experienced the following events for the first two years of its operations: Year 1: 1. Issued $26,000 of common stock for cash. 2. Provided $95,600 of services on account. 3. Provided $52,000 of services and received cash. 4. Collected $85,000 cash from accounts receivable. 5. Paid $54,000 of salaries expense for the year. 6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 4 percent of the ending accounts receivable balance will be uncollectible. 7. Closed the revenue account. 8. Closed the expense account. Year 2: 1. Wrote off an uncollectible account for $750. 2. Provided $104,000 of services on account. 3. Provided $48,000 of services and collected cash. 4. Collected $97,000 cash from accounts receivable. 5. Paid $81,000 of salaries expense for the year. 6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 4 percent of the ending accounts receivable balance will be uncollectible. X Answer is not complete. LEACH INC. Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 1 Beginning common stock Plus: Stock issued 26,000 $ 26,000 Beginning retained earnings Plus: Net income 0 Ending retained earnings Total stockholders' equity $ 26,000 X Answer is not complete. LEACH INC. Balance Sheet As of December 31, Year 1 Assets Cash $ 109,000 Accounts receivable $ 10,600 (424) Less: Allowance for doubtful accounts 10,176 $ 119,176 Total assets Liabilities Stockholders' equity Retained earnings 0 Total stockholders' equity Total liabilities and stockholders' equity 0 X Answer is not complete. LEACH INC. Statement of Cash Flows For the Year Ended December 31, Year 1 Cash flow from operating activities Cash inflow from customers $ 0 Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $ 0