Question
The following trial balance was prepared for Tile, Etc., Inc., on December 31, Year 1, after the closing entries were posted: Account Title Debit Credit
The following trial balance was prepared for Tile, Etc., Inc., on December 31, Year 1, after the closing entries were posted:
Account Title | Debit | Credit | ||||
Cash | $ | 135,000 | ||||
Accounts Receivable | 130,000 | |||||
Allowance for Doubtful Accounts | $ | 20,500 | ||||
Inventory | 435,000 | |||||
Accounts Payable | 100,000 | |||||
Common Stock | 475,000 | |||||
Retained Earnings | 104,500 | |||||
Totals | $ | 700,000 | $ | 700,000 | ||
Tile, Etc. had the following transactions in Year 2:
- Purchased merchandise on account for $605,000.
- Sold merchandise that cost $445,000 for $940,000 on account.
- Sold for $270,000 cash merchandise that had cost $170,000.
- Sold merchandise for $215,000 to credit card customers. The merchandise had cost $106,000. The credit card company charges a 3 percent fee.
- Collected $670,000 cash from accounts receivable.
- Paid $635,000 cash on accounts payable.
- Paid $150,000 cash for selling and administrative expenses.
- Collected cash for the full amount due from the credit card company (see item 4).
- Loaned $85,000 to J. Parks. The note had an 6 percent interest rate and a one-year term to maturity.
- Wrote off $8,000 of accounts as uncollectible.
- Made the following adjusting entries:
- (a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account.
- (b) Recorded seven months of accrued interest on the note at December 31, Year 2 (see item 9).
Required a. Prepare general journal entries for these transactions; post the entries to T-accounts; and prepare an income statement, a statement of changes in stockholders equity, a balance sheet, and a statement of cash flows for Year 2. b. Compute the net realizable value of accounts receivable at December 31, Year 2. c. If Tile, Etc. used the direct write-off method, what amount of uncollectible accounts expense would it report on the income statement?
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