During the first year of operation, Year 1, Direct Service Company recognized $304,000 of service revenue on account. At the end of Year 1, the accounts receivable balance was $59,759. For this first year in business, the owner believes uncollectible accounts expense will be about 7 percent of sales on account. Required a. What amount of cash did Direct Service collect from accounts receivable during Year 1? b. Assuming Direct Service uses the allowance method to account for uncollectible accounts, what amount should Direct Service record as uncollectible accounts expense for Year 1? c. Prepare the general journal entries to: (1) Record service revenue on account. (2) Record collections from accounts receivable. (3) Record the entry to recognize uncollectible accounts expense. d. What is the net realizable value of receivables at the end of Year 1? e. Show the effects of the transactions in Requirement c on the financial statements by recording the appropriate amounts in a horizontal statements model. When you record amounts in the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Leave the cell blank to indicate that an element is not affected
During the first year of operation, Year 1, Direct Service Company recognized $304,000 of service revenue on account. At the end of Year 1, the accounts receivable balance was $59,759. For this first year in business, the owner believes uncollectible accounts expense will be about 7 percent of sales on account. Required a. What amount of cash did Direct Service collect from accounts receivable during Year 1? b. Assuming Direct Service uses the allowance method to account for uncollectible accounts, what amount should Direct Service record as uncollectible accounts expense for Year 1? c. Prepare the general journal entries to: (1) Record service revenue on account. (2) Record collections from accounts receivable. (3) Record the entry to recognize uncollectible accounts expense. d. What is the net realizable value of receivables at the end of Year 1? e. Show the effects of the transactions in Requirement c on the financial statements by recording the appropriate amounts in a horizontal statements model. When you record amounts in the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Leave the cell blank to indicate that an element is not affected
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### Financial Accounting Problem Set
During the first year of operation, Year 1, Direct Service Company recognized $304,000 of service revenue on account. At the end of Year 1, the accounts receivable balance was $59,759. For this first year in business, the owner believes uncollectible accounts expense will be about 7 percent of sales on account.
**Required:**
**a.** What amount of cash did Direct Service collect from accounts receivable during Year 1?
**b.** Assuming Direct Service uses the allowance method to account for uncollectible accounts, what amount should Direct Service record as uncollectible accounts expense for Year 1?
**c.** Prepare the general journal entries to:
1. Record service revenue on account.
2. Record collections from accounts receivable.
3. Record the entry to recognize uncollectible accounts expense.
**d.** What is the net realizable value of receivables at the end of Year 1?
**e.** Show the effects of the transactions in Requirement c on the financial statements by recording the appropriate amounts in a horizontal statements model. When you record amounts in the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Leave the cell blank to indicate that an element is not affected by the event.
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