5-1
Cash
+
Acct. Rec.
Allow.
Ret. Ear.
2015
Bal.
32,000
13,000
450
44,550
1.
NA
(320)
(320)
NA
2.
NA
65,000
NA
65,000
Service Rev.
3.
66,000
(66,000)
NA
NA
4.
NA
NA
650
(650)
Uncoll. Accts. Exp.
Bal.
98,000
+
11,680
780
108,900
b. (1) Net Income for 2014: $44,550 ($45,000 − $450)
$12,550 ($13,000 − $450)
c. (1) Net Income for 2015: $64,550 ($65,000 − $450)
(2) Net Cash Flow from Operating Activities: $66,000
5-2
EXERCISE 5-5
Event
Assets
=
Liab.
+
Stk. Equity
Rev.
–
Exp.
=
Net Inc.
Cash Flow
Cash
A. Rec.
All for DA
=
+
Ret. Earn.
1.
NA
+
NA
NA
+
+
NA
+
NA
2.
+
−
NA
NA
NA
NA
NA
NA
+ OA
3.
NA
−
−
NA
NA
NA
NA
NA
NA
4.
NA
NA
+
NA
−
NA
+
−
NA
5-3
EXERCISE 5-6
2015 transactions:
1. Uncollectible accounts written off: $ 2,900
2a. Reinstated previously written off accounts: 200
a.
Event
Assets
=
Liab.
Equity
Acct.
Title/Re
Cash
+
A. Rec.
−
Allow.
=
Ret. Earn.
Bal.
76,000
3,200
1.
NA
(2,900)
(2,900)
NA
NA
2a.
NA
200
200
NA
NA
2b.
200
(200)
NA
NA
NA
3.
NA
210,000
NA
NA
210,000
Rev.
4.
215,000
(215,000)
NA
NA
NA
5.
NA
NA
2,100
NA
(2,100)
Uncoll. Exp
Bal.
68,100
2,600
207,900
b. (1) Allowance for Doubtful Accounts, 12/31/15: $ 2,600
c. Uncollectible Accounts Expense 2015 ($210,000 x 1%): $2,100
d. The recovery of previously written off accounts will cause two asset
5-4
EXERCISE 5-7
Accounts Receivable
Allowance for Doubt. Accts.
Sales on account 320,000
Est. 3,200
Coll. (295,000)
Chg. Off (1,400)
Chg. Off (1,400)
Bal. 1,800
Bal. 23,600
a. $23,600 (see above)
c. $3,200 ($320,000 x 1%)
EXERCISE 5-8
a.
Sales on Account
$500,000
Less: Ending Balance of Accounts Receivable
(72,000)
Collections of Accounts Receivable
$428,000
b. Sales on Account $500,000 x 1% = $5,000 of Uncollectible Accounts
Expense
c. Accounts Receivable Ending Balance
$72,000
Less: Allowance for Doubtful Accounts
(5,000)
Net Realizable Value of Accounts Receivable
$67,000
5-5
d.
Clayton Repair Co.
Effect of Events on Financial Statements
Event
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
Net Inc.
Cash Flows
Cash
+
Acct. Rec.
−
Allow.
=
NA
+
Ret. Earn.
1.
NA
+
500,000
−
NA
=
NA
+
500,000
500,000
−
NA
500,000
NA
2.
428,000
+
(428,000)
−
NA
=
NA
+
NA
NA
−
NA
NA
428,000 OA
3.
NA
+
NA
−
5,000
=
NA
+
(5,000)
NA
−
5,000
(5,000)
NA
Totals
428,000
+
72,000
−
5,000
=
-0-
+
495,000
500,000
−
5,000
495,000
428,000
5-6
EXERCISE 5-9
a.
Event
Assets
=
Liab.
Equity
Acct.
Title/Re
Cash
+
A. Rec.
−
Allow.
=
Ret. Earn.
1.
NA
86,000
NA
NA
86,000
Rev.
2.
72,000
(72,000)
NA
NA
NA
3.
(39,000)
NA
NA
NA
(39,000)
Sal. Exp.
4.
NA
NA
1,6251
NA
(1,625)
Uncoll. Exp
Bal.
33,000
+
14,000
−
1,625
=
45,375
1
Number of days
Past Due
Amount
Percent Likely to
be Uncollectible
Allowance Balance
Current
$7,500
.01
$ 75
0-30
2,000
.05
100
31–60
1,500
.10
150
61–90
1,000
.30
300
Over 90 days
2,000
.50
1,000
Total
$1,625
b.
Tyler Service Co.
Income Statement
For the Year Ended December 31, 2014
Service Revenue
$86,000
Operating Expenses
Salaries Expense
$39,000
Uncollectible Accounts Expense
1,625
Total Operating Expenses
(40,625)
Net Income
$45,375
c. Net Realizable Value:
5-7
5-8
EXERCISE 5-10
a.
Faello, Inc. Accounting Equation 2014
Event
Assets
=
Liab.
Equity
Acct.
Title/Re
Cash
+
A. Rec.
−
Allow.
=
Ret. Earn.
1.
NA
80,000
NA
NA
80,000
Rev.
2.
22,000
NA
NA
NA
22,000
Rev.
3.
65,000
(65,000)
NA
NA
NA
4.
(24,000)
NA
NA
NA
(24,000)
Sal. Exp.
5.
NA
NA
750*
NA
(750)
Uncoll. Exp
Bal.
63,000
+
15,000
−
750
=
77,250
*$15,000 x 5% = $750
b.
Faello Inc.
Income Statement
For the Year Ended December 31, 2014
Service Revenue
$102,000
Operating Expenses
Salaries Expense
$24,000
Uncollectible Accounts Expense
750
Total Operating Expenses
(24,750)
Net Income
$ 77,250
Faello Inc.
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2014
Beginning Retained Earnings
$ -0-
Plus: Net Income
77,250
Ending Retained Earnings
$ 77,250
5-9
Total Stockholders’ Equity
$ 77,250
EXERCISE 5-10 b. (cont.)
Faello Inc.
Balance Sheet
As of December 31, 2014
Assets
Cash
$ 63,000
Accounts Receivable
$15,000
Less: Allowance for Doubtful Accounts
(750)
14,250
Total Assets
$ 77,250
Liabilities
$ -0-
Stockholders’ Equity
Retained Earnings
$77,250
Total Stockholders’ Equity
77,250
Total Liabilities and Stockholders’ Equity
$77,250
Faello Inc.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows From Operating Activities:
Inflow from Customers
$ 87,000
Outflow for Expenses
(24,000)
Net Cash Flow from Operating Activities
$63,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
-0-
Net Change in Cash
63,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$63,000
c. Accounts Receivable, 12/31/2014 $15,000
5-10
5-11
EXERCISE 5-10 (cont.)
d.
Faello, Inc. Accounting Equation – 2015
Event
Assets
=
Liab.
Equity
Acct.
Title/Re
Cash
+
A. Rec.
−
Allow.
=
Ret. Earn.
Bal.
63,000
15,000
750
77,250
1.
NA
(620)
(620)
NA
NA
2.
NA
95,000
NA
NA
95,000
Rev.
3.
15,000
NA
NA
NA
15,000
Rev.
4.
90,000
(90,000)
NA
NA
NA
5.
(35,000)
NA
NA
NA
(35,000)
Sal. Exp.
6.
NA
NA
839*
NA
(839)
Uncoll. Exp
Bal.
133,000
+
19,380
−
969
=
-0-
151,411
*Acct. Rec. Bal. $19,380 x 5% = $969 Ending Allowance for Doubful Accounts
Adjustment: Beg. Allowance for Doubtful Accounts $750 less write-off, $620 =
$130 balance before adjustment. Required balance $969 less balance before
adjustment $130 = $839 adjustment.EXERCISE 5-10 d. (cont.)
Faello Inc.
Income Statement
For the Year Ended December 31, 2015
Service Revenue
$110,000
Operating Expenses
Salaries Expense
$35,000
Uncollectible Accounts Expense
839
Total Operating Expenses
(35,839)
Net Income
$ 74,161
Faello Inc.
5-12
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2015
Beginning Retained Earnings
$77,250
Plus: Net Income
74,161
Ending Retained Earnings
$151,411
Total Stockholders’ Equity
$151,411
EXERCISE 5-10 d. (cont.)
Faello Inc.
Balance Sheet
As of December 31, 2015
Assets
Cash
$133,000
Accounts Receivable
$19,380
Less: Allowance for Doubtful Accounts
(969)
18,411
Total Assets
$151,411
Liabilities
$ -0-
Stockholders’ Equity
Retained Earnings
$151,411
Total Stockholders’ Equity
151,411
Total Liabilities and Stockholders’ Equity
$151,411
Faello Inc.
Statement of Cash Flows
For the Year Ended December 31, 2015
Cash Flows From Operating Activities:
Inflow from Customers
$105,000
Outflow for Expenses
(35,000)
Net Cash Flow from Operating Activities
$ 70,000
5-13
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
-0-
Net Change in Cash
70,000
Plus: Beginning Cash Balance
63,000
Ending Cash Balance
$133,000
Accounts Receivable, 12/31/2015 $19,380
Less: Allowance for Doubtful Accounts, 12/31/2015 (969)
Net Realizable Value, 12/31/2015 $18,411