Chapter 5, Problem 4E

Effect of recognizing uncollectible accounts expense on financial statements: Percent of revenue allowance method

Rosie Dry Cleaning was started on January 1, 2018. It experienced the following events during its first two years of operation:

Events Affecting 2018

1. Provided $45,000 of cleaning services on account.

2. Collected $39,000 cash from accounts receivable.

3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Events Affecting 2019

1. Wrote off a $300 account receivable that was determined to be uncollectible.

2. Provided $62,000 of cleaning services on account.

3. Collected $61,000 cash from accounts receivable.

4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Required

a. Organize the transaction data in accounts under an accounting equation.

b. Determine the following amounts:

(1) Net income for 2018.

(2) Net cash flow from operating activities for 2018.

(3) Balance of accounts receivable at the end of 2018.

(4) Net realizable value of accounts receivable at the end of 2018.

c. Repeat Requirement b for the 2019 accounting period.