Question
Hummus Company began operations on January 1, Year 1. Selected ending balances for Year 1 are: Accounts receivable, $5,600 Allowance for doubtful accounts, $790 Hummus
Hummus Company began operations on January 1, Year 1. Selected ending balances for Year 1 are:
Accounts receivable, $5,600
Allowance for doubtful accounts, $790
Hummus Company experienced the following events during Year 2:
Earned $225,000 of revenue on account
Collected $175,000 cash from accounts receivable
Paid in advance a one-year lease for office rent, $12,000; rental period began May 1, Year 2
Salary expense was $45,000, of which $40,000 had been paid at the end of Year 2
Operating expenses were $125,000, of which $100,000 had been paid at the end of Year 2
Wrote off $2,000 of uncollectible accounts
Adjusted the accounting records to reflect managements belief that 3% of sales on account will be
uncollectible. Hummus Company uses the allowance method for accounting for bad debts.
Collected $500 from accounts that had been previously written off
(3 points) Question 1 What is Hummus Companys net income for Year 2?
(3 points) Question 2 What is the net realizable value that Hummus Company will report on its Year 2 balance sheet (after all adjusting entries have been made)?
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