Lance Lawn Services reports bad debt expense using the allowance method

E 16-5 Temporary difference; future deductible amounts; taxable income given

Lance Lawn Services reports bad debt expense using the allowance method. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method). At December 31, 2011, Lance has accounts receivable and an allowance for uncollectible accounts of $20 million and $1 million, respectively, and taxable income of $75 million. At December 31, 2010, Lance reported a deferred tax asset of $435,000 related to this difference in reporting bad debts, its only temporary difference. The enacted tax rate is 40% each year.

Required:
Prepare the appropriate journal entry to record Lance's income tax provision for 2011.

Click here for the solution: Lance Lawn Services reports bad debt expense using the allowance method

The following transactions apply to Puretz Consulting for 2010, the first year of operation

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

(Comprehensive Accounting Cycle Problem) The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2010, after the closing entries were posted

Problem 5-26 Comprehensive Accounting Cycle Problem (Uses Percent of Revenue Allowance Method)

The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2010, after the closing entries were posted.

AND SO ON

Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for 2011.

Check:
Net Income: $236,710
Total Assets: 1,142,950

Click here for the solution: (Comprehensive Accounting Cycle Problem) The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2010, after the closing entries were posted