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 $30,000 of common stock for cash. 2. Provided $100,000 of services on account. 3. Provided $56,000 of services and received cash. 4. Collected $89,000 cash from accounts receivable. 5. Paid $58,000 of salaries expense for the year. 6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 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 $860. 2. Provided $108,000 of services on account. 3. Provided $52,000 of services and collected cash. 4. Collected $101,000 cash from accounts receivable. 5. Paid $85,000 of salaries expense for the year. 6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible. Exercise 7-7A Part a Required: a. Record the Year 1 events in general journal form and post them to T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Cash Common Stock Beg. Bal. Beg. Bal 58,000 30.000 1. 30,000 56,000 89,000 End. Bal. 30,000 End. Bal. 117.000 Accounts Receivable Retained Earnings Beg. BAI Beg Bal. 2. 100,000 $ 89,000 4. End. Bal. 11,000 End. Bal. Service Revenue Allowance for Doubtful Accounts Beg. Bal. 6. 550 Beg. Bal. End. Bal. 550 End. Bal. Uncoll. Accts. Expense Salaries Expense Beg. Bal. Beg. Bal. Bal. Bal. End. End. Bal. b. Prepare the income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows for Year 1. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.) LEACH INC. Income Statement For the Year Ended December 31, Year 1 Operating expenses Total operating expenses LEACH INC. Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 1 Total stockholders' equity $ 0 LEACH INC. Balance Sheet As of December 31. Year 1 Assets Total assets Llabilities Stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity LEACH INC. Statement of Cash Flows For the Year Ended December 31, Year 1 Cash flow from operating activities Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash Ending cash balance c. What is the net realizable value of the accounts receivable at December 31, Year 1? Net realizable value
