Problem 5-27

Questions 1 - 2 (of 2)

Problem 5-27 Accounting for notes receivable and uncollectible accounts using the percent of sales allowance method LO 5-2, 5-4

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The following transactions apply to Brooks Co. for 2014, its first year of operations.

1.	Issued $140,000 of common stock for cash.
2.	Provided $104,000 of services on account.
3.	Collected $92,000 cash from accounts receivable.
4.	Loaned $11,000 to Horne Co. on October 1, 2014. The note had a one-year term to maturity and an 8 percent interest rate.
5.	Paid $44,000 of salaries expense for the year.
6.	Paid a $2,500 dividend to the stockholders.
7.	Recorded the accrued interest on December 31, 2014 (see item 4).
8.	Uncollectible accounts expense is estimated to be 1 percent of service revenue on account.

Section BreakProblem 5-27 Accounting for notes receivable and uncollectible accounts using the percent of sales allowance method LO 5-2, 5-4

1.

Problem 5-27 Part a

Required
a.	Show the effects of the above transactions in a horizontal statements model like the one shown below. In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA) and net change in cash (NC). The letters NA indicate that an element is not affected by the event. (Enter any decreases to account balances and cash outflows with a minus sign. Do not round intermediate calculations and round your final answers to nearest whole number.)

WorksheetDifficulty: 3 HardLearning Objective: 05-04 Explain how accounting for notes receivable and accrued interest affects financial statements.

Problem 5-27 Part aLearning Objective: 05-02 Use the percent of revenue method to estimate the uncollectible accounts expense.

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2.

value:

Problem 5-27 Part b

b-1.	Prepare the income statement for 2014. (Round intermediate calculations and final answers to nearest whole dollar amount.)

b-2.	Prepare the balance sheet for 2014. (Round intermediate calculations and final answers to nearest whole dollar amount.)

b-3.	Prepare the statement of cash flows for 2014. (Amounts to be deducted should be indicated with a minus sign.)

WorksheetDifficulty: 3 HardLearning Objective: 05-04 Explain how accounting for notes receivable and accrued interest affects financial statements.

Problem 5-27 Part bLearning Objective: 05-02 Use the percent of revenue method to estimate the uncollectible accounts expense.