Problem 5-17 Accounting for uncollectible accounts-two cycles using the percent of revenue allowance method
The following transactions apply to Puretz Consulting for 2010, the first year of operation.
1. Recognized $75,000 of service revenue earned on account.
2. Collected $62,000 from accounts receivable.
3. Adjusted accounts to recognize uncollectible accounts expense.
Puretz uses the allowance method of accounting for uncollectible
accounts and estimates that uncollectible accounts expense will be 2
percent of sales on account.
The following transactions apply to Puretz Consulting for 2011.
1. Recognized $86,500 of service revenue on account.
2. Collected $85,000 from accounts receivable.
3. Determined that $1,120 of the accounts receivable were uncollectible and wrote them off.
4. Collected $500 of an account that had been previously written off.
5. Paid $52,600 cash for operating expenses.
6. Adjusted accounts to recognize uncollectible accounts expense for
2011. Puretz estimates that uncollectible accounts expense will be 1
percent of sales on account.
Required
Complete all the following requirements for 2010 and 2011. Complete all
requirements for 2010 prior to beginning the requirements for 2011.
a. Identify the type of each transaction (asset source, asset use, asset exchange, or claims exchange).
b. Show the effect of each transaction on the elements of the financial
statements, using a horizontal statements model like the one shown
here. Use + for increase, - for decrease, and NA for not affected. Also,
in the Cash Flow column, indicate whether the item is an operating
activity (OA), investing activity (IA), or financing activity (FA). The
first transaction is entered as an example. (Hint: Closing entries do
not affect the statements model.)
c. Organize the transaction data in accounts under an accounting equation.
d. Prepare the income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows.
Check:
c. Ending Accounts Receivable, 2010: $13,000
d. Net Income, 2011: $33,035
Click here for the solution: The following transactions apply to Puretz Consulting for 2010, the first year of operation
