Problem 7-1 - Accounting for Bad Debts The Solo Company was started on January 1, 2010. The following events occurred ?during 2010 and 2011. 2010 1. Provided $4,000 of services on account. 2. Collected $3,000 cash from accounts receivable. 3. Estimated uncollectible accounts expense to be 1.5% of 2010 credit sales. 2011 1. Wrote off $40 of accounts receivable that were deemed uncollectible. 2. Provided $6,500 of services on account. 3. Collected $5,400 cash from accounts receivable. 4. Received $5 from a bad debt that had been previously written off. Reinstated the account. 5. Recorded the $5 cash received from the receivable reinstated in Event No. 4. 6. Estimated uncollectible accounts expense to be 1% of 2011 credit sales. Required a. Record the events in T-accounts, including closing the revenue and expense accounts to retained earnings. b. Record the events using the horizontal financial statements model under the titles of the affected accounts. Record a zero under each heading not affected by a given event. Compare the final balances in the T-accounts from Part a with the ending balances in the horizontal financial statements model. Problem 7-1 Workpaper, part a. T-accounts, 2010 Ledger T-Accounts Cash Liabilities Retained Earnings 0 Bal. 3000 10375 Bal. Accounts Receivable Services Revenue 6500 6500 Bal. 1,000 960 Allow. for Doubt. Accts. Bad Debts Expense 60 Bal. Problem 7-1 Workpaper, part b. Horizontal Financial Statements Model, 2010 Event Assets = Liab. + Equity Rev. Exp. = Net Inc. Cash Flow No. Cash + Accts. Rec. + (Allow.) = Ret. Earn. Beg. bal. 3000 + 1000 + = + = 1. + - = + - = 2. + + = + = 3. + + = + = Totals 3,000 + 1,000 + (60) = 0 + 3,940 4,000 60 = 3,940 3,000 NC

Chapter 7 Accounting for Bad Debts Problem 7-1 - Accounting for Bad Debts The Solo Company was started on January 1, 2010. The following events occurred during 2010 and 2011. 2010 1. Provided $4,000 of services on account. 2. Collected $3,000 cash from accounts receivable. 3. Estimated uncollectible accounts expense to be 1.5% of 2010 credit sales. 2011 1. Wrote off $40 of accounts receivable that were deemed uncollectible. 2. Provided $6,500 of services on account. 3. Collected $5,400 cash from accounts receivable. 4. Received $5 from a bad debt that had been previously written off. Reinstated the account. 5. Recorded the $5 cash received from the receivable reinstated in Event No. 4. 6. Estimated uncollectible accounts expense to be 1% of 2011 credit sales. Required a. Record the events in T-accounts, including closing the revenue and expense accounts to retained earnings. b. Record the events using the horizontal financial statements model under the titles of the affected accounts. Record a zero under each heading not affected by a given event. Compare the final balances in the T-accounts from Part a with the ending balances in the horizontal financial statements model. Problem 7-1 Workpaper, part a. T-accounts, 2010 Ledger T-Accounts Cash Liabilities Retained Earnings Bal. 3000 | 10375 Bal. Accounts Receivable Services Revenue 6500 6500 Bal. 1,000 960 Allow. for Doubt. Accts. Bad Debts Expense 1 60 Bal. 60 Bal