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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 $ 160,000
Accounts Receivable 135,000
Allowance for Doubtful Accounts $ 23,000
Inventory 445,000
Accounts Payable 105,000
Common Stock 500,000
Retained Earnings 112,000
Totals $ 740,000 $ 740,000

Tile, Etc. had the following transactions in Year 2:

  1. Purchased merchandise on account for $630,000.
  2. Sold merchandise that cost $470,000 for $990,000 on account.
  3. Sold for $295,000 cash merchandise that had cost $180,000.
  4. Sold merchandise for $240,000 to credit card customers. The merchandise had cost $116,000. The credit card company charges a 4 percent fee.
  5. Collected $720,000 cash from accounts receivable.
  6. Paid $660,000 cash on accounts payable.
  7. Paid $155,000 cash for selling and administrative expenses.
  8. Collected cash for the full amount due from the credit card company (see item 4).
  9. Loaned $60,000 to J. Parks. The note had an 8 percent interest rate and a one-year term to maturity.
  10. Wrote off $8,500 of accounts as uncollectible.
  11. Made the following adjusting entries:
  1. (a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account.
  2. (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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