Web Wizard, Inc., has provided information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter. During January, the company provided services for $40,000 on credit. On January 31, the company estimated bad debts using 1 percent of credit sales. On February 4, the company collected $20,000 of accounts receivable. On February 15, the company wrote off a $100 account receivable. During February, the company provided services for $30,000 on credit. On February 28, the company estimated bad debts using 1 percent of credit sales. On March 1, the company loaned $2,400 to an employee, who signed a 6% note, due in 6 months. On March 15, the company collected $100 on the account written off one month earlier. On March 31, the company accrued interest earned on the note. On March 31, the company adjusted for uncollectible accounts, based on an aging analysis (below). Allowance for Doubtful Accounts has an unadjusted credit balance of $1,200. For items (a)–(j), analyze the transaction to determine effects on specific financial statement accounts and the overall accounting equation. (Enter any decreases to Assets, Liabilities, or Stockholders Equity with a minus sign. Do not round intermediate calculations.) Show how Accounts Receivable, Notes Receivable, and their related accounts would be reported in the current assets section of a classified balance sheet at the end of the quarter on March 31. (Do not round intermediate calculations.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Web Wizard, Inc., has provided information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter.

During January, the company provided services for $40,000 on credit.
On January 31, the company estimated bad debts using 1 percent of credit sales.
On February 4, the company collected $20,000 of accounts receivable.
On February 15, the company wrote off a $100 account receivable.
During February, the company provided services for $30,000 on credit.
On February 28, the company estimated bad debts using 1 percent of credit sales.
On March 1, the company loaned $2,400 to an employee, who signed a 6% note, due in 6 months.
On March 15, the company collected $100 on the account written off one month earlier.
On March 31, the company accrued interest earned on the note.
On March 31, the company adjusted for uncollectible accounts, based on an aging analysis (below). Allowance for Doubtful Accounts has an unadjusted credit balance of $1,200.

For items (a)–(j), analyze the transaction to determine effects on specific financial statement accounts and the overall accounting equation. (Enter any decreases to Assets, Liabilities, or Stockholders Equity with a minus sign. Do not round intermediate calculations.)

Show how Accounts Receivable, Notes Receivable, and their related accounts would be reported in the current assets section of a classified balance sheet at the end of the quarter on March 31. (Do not round intermediate calculations.)

Number of Days Unpaid
31-60
$4
Customer
Total
0-30
61-90
Over 90
Alabama Tourism
2$
200
$
100
80
$
20
Bayside Bungalows
Others (not shown to save space)
Xciting Xcursions
400
400
17,000
6,800
8,400
1,000
800
400
400
Total Accounts Receivable
$18,000
$ 7,300
$ 8,480
$ 1,020
$ 1,200
Estimated Uncollectible (%)
2%
10%
20%
40%

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