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7-26
EXERCISE 7-8A (cont.)
b.
Leach Inc.
Income Statement
For the Year Ended December 31, 2016
Service Revenue
$114,000
Operating Expenses
Salaries Expense
$38,000
Uncollectible Accounts Expense
450
Total Operating Expenses
(38,450)
Net Income
$75,550
Leach Inc.
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2016
Beginning Common Stock
$ ‘ -0-
Plus: Common Stock Issued
10,000
Ending Common Stock
$10,000
Beginning Retained Earnings
-0-
Plus: Net Income
75,550
Ending Retained Earnings
$75,550
Total Stockholders’ Equity
$85,550
EXERCISE 7-8A b. (cont.)
Leach Inc.
Balance Sheet
As of December 31, 2016
Assets
Cash
$77,000
Accounts Receivable
$ 9,000
Less: Allowance for Doubtful Accounts
(450)
8,550
Total Assets
$85,550
Liabilities
$ -0-
Stockholders’ Equity
Common Stock
$10,000
Retained Earnings
75,550
Total Stockholders’ Equity
85,550
Total Liabilities and Stockholders’ Equity
$85,550
7-28
EXERCISE 7-8A (cont.)
d.
Leach Inc.
General Journal
Date
Account Titles
Debit
Credit
2017
1.
Allowance for Doubtful Accounts
650
Accounts Receivable
650
2.
Accounts Receivable
88,000
Service Revenue
88,000
3.
Cash
32,000
Service Revenue
32,000
4.
Cash
81,000
Accounts Receivable
81,000
5.
Salaries Expense
65,000
Cash
65,000
6.
Uncollectible Accounts Expense*
968
Allowance for Doubtful Accounts
968
7-29
EXERCISE 7-8A d. (cont.)
Leach Inc. T-Accounts – 2017
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Common Stock
2017
5.
65,000
2017
Bal.
77,000
Bal.
10,000
3.
32,000
4.
81,000
Retained Earnings
Bal.
125,000
2017
Bal.
75,550
Accounts Receivable
Service Revenue
2017
2017
Bal.
9,000
1.
650
2.
88,000
2. 88,000
4. 81,000
3.
32,000
Bal.
15,350
Bal.
120,000
Salaries Expense
2017
5.
65,000
Allow. For Doubt. Accts.
Bal.
65,000
2017
Bal.
450
Uncoll. Accts. Expense
1.
650
6.
968
2017
Bal.
768
6.
968
Bal.
968
7-30
EXERCISE 7-8A d. (cont.)
Leach Inc.
Income Statement
For the Year Ended December 31, 2017
Service Revenue
$120,000
Operating Expenses
Salaries Expense
$65,000
Uncollectible Accounts Expense
968
Total Operating Expenses
(65,968)
Net Income
$ 54,032
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2017
Beginning Common Stock
$10,000
Plus: Common Stock Issued
-0-
Ending Common Stock
$10,000
Beginning Retained Earnings
75,550
Plus: Net Income
54,032
Ending Retained Earnings
$129,582
Total Stockholders’ Equity
$139,582
EXERCISE 7-8A d. (cont.)
Leach Inc.
Balance Sheet
As of December 31, 2017
Assets
Cash
$125,000
Accounts Receivable
$15,350
Less: Allowance for Doubtful Accounts
(768)
14,582
Total Assets
$139,582
Liabilities
$ -0-
Stockholders’ Equity
Common Stock
$ 10,000
Retained Earnings
129,582
Total Stockholders’ Equity
139,582
Total Liabilities and Stockholders’ Equity
$139,582
7-32
EXERCISE 7-9A
a. NC = Net Change in Cash
Patel Service Co.
Horizontal Statements Model
Balance Sheet
Income Statement
Statement of
Event
Assets
=
Liab.
+
Equity
Rev.
–
Exp.
=
Net Inc.
Cash Flows
Cash
+
Acct. Rec.
=
+
Ret. Ear.
2016
1.
35,000
+
NA
=
NA
+
35,000
35,000
−
NA
=
35,000
35,000 OA
2.
NA
+
4,500
=
NA
+
4,500
4,500
−
NA
=
4,500
NA
3.
(19,000)
+
NA
=
NA
+
(19,000)
NA
−
19,000
=
(19,000)
(19,000) OA
4.
NA
+
(120)
=
NA
+
(120)
NA
−
120
=
(120)
NA
Bal.
16,000
+
4,380
=
NA
+
20,380
39,500
−
19,120
=
20,380
16,000 NC
b. Net Income for 2016: $20,380
7-33
EXERCISE 7-9A (cont.)
c.
Patel Service Co.
General Journal
Date
Account Titles
Debit
Credit
2016
1.
Cash
35,000
Service Revenue
35,000
2.
Accounts Receivable
4,500
Service Revenue
4,500
3.
Operating Expenses
19,000
Cash
19,000
4.
Uncollectible Accounts Expense
120
Accounts Receivable
120
7-34
EXERCISE 7-10A
Accounts Receivable
Allowance for Doubt. Accts.
Sales 260,000
Coll. 235,000
Write-off 1,250
Est. 2,600
Write-off 1,250
Bal. 1,350
Bal. 23,750
a.
(1) $23,750 (see above)
(2) $1,350
(3) $2,600 ($260,000 x 1%)
(4) $23,750 − $1,350 = $22,400
b.
(1) $23,750 (same as above)
(2) $1,250 (the amount written off)
(3) $23,750 (the balance of accounts receivable)
7-35
EXERCISE 7-11A a.
Rainey Enterprises
General Journal
Date
Account Titles
Debit
Credit
6/1/2016
Notes Receivable
20,000
Cash
20,000
12/31/2016
Interest Receivable1
700
Interest Revenue
700
6/1/2017
Interest Receivable2
500
Interest Revenue
500
6/1/2017
Cash
21,200
Notes Receivable
20,000
Interest Receivable
1,200
1$20,000 x 6% x 7/12 = $700
2$20,000 x 6% x 5/12 = $500
b.
Balance Sheet
Income Statement
Statement of
Event
Assets
=
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Cash
+
Note Rec.
+
Int. Rec.
=
Ret. Ear.
6/1/16
(20,000)
20,000
NA
NA
NA
NA
NA
(20,000) IA
12/31/16
NA
NA
700
700
700
NA
700
NA
6/1/17
NA
NA
500
500
500
NA
500
NA
6/1/17
21,200
(20,000)
(1,200)
NA
NA
NA
NA
20,000 IA
1,200 OA
7-36
EXERCISE 7-12A
a. $10,000 x 6% x 8/12 = $400
b. Total Receivables at December 31, 2016
Notes Receivable $10,000
7-37
EXERCISE 7-13A
a.
Ultra Day Spa
Horizontal Statements Model
Balance Sheet
Income Statement
Statement of
Assets
=
Liab
.
+
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Event
Cash
+
Acct. Rec.
=
+
Ret. Ear
1.
NA
+
114,000
=
NA
+
114,000
120,000
−
6,000*
=
114,000
NA
2.
114,000
+
(114,000)
=
NA
+
NA
NA
−
NA
=
NA
114,000 OA
*$120,000 x 5% = $6,000
b. (1) Total assets: Cash $114,000
7-38
EXERCISE 7-14A
a. & b.
Event
Account Titles
Debit
Credit
a.
Accounts Receivable
5,760
Credit Card Expense ($6,000 x 4%)
240
Sales Revenue
6,000
b.
Cash
5,760
Accounts Receivable
5,760
c. Net Income Sales $6,000
Credit Card Expense (240)
Net Income $5,760
7-39
EXERCISE 7-15A a.
Little Grocery Supplier
Journal Entries for 2016
Event
Account Titles
Debit
Credit
1.
Cash
20,000
Common Stock
20,000
2.
Merchandise Inventory
85,000
Accounts Payable
85,000
3a.
Accounts Receivable
160,000
Sales Revenue
160,000
3b.
Cost of Goods Sold
91,000
Merchandise Inventory
91,000
4.
Allowance for Doubtful Accounts
900
Accounts Receivable
900
5. 9/1
Notes Receivable
18,000
Cash
18,000
6.
Operating Expenses
19,000
Cash
19,000
7.
Cash
161,000
Accounts Receivable
161,000
8.
Accounts Payable
92,000
Cash
92,000
9.
Dividends
5,000
Cash
5,000
10a.
Accounts Receivable – Credit Cards
6,720
Credit Card Expense
280
Sales Revenue
7,000
10b.
Cost of Goods Sold
4,000
Merchandise Inventory
4,000
7-40
EXERCISE 7-15A a. (cont.)
Little Grocery Supplier
Journal Entries for 2016 (cont.)
Event
Account Title
Debit
Credit
11.
Uncollectible Accounts Expense1
1,600
Allowance for Doubtful Accounts
1,600
12.
Interest Receivable2
480
Interest Revenue
480
1$160,000 x 1% = $1,600
2$18,000 x 8% x 4/12 = $480
7-41
EXERCISE 7-15A b.
Little Grocery Supplier T-Accounts, 2016
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Accounts Payable
Common Stock
Bal. 9,000
Bal. 21,000
Bal. 50,000
1. 20,000
5. 18,000
8. 92,000
2. 85,000
1. 20,000
7. 161,000
6. 19,000
Bal. 14,000
Bal. 70,000
8. 92,000
9. 5,000
Retained Earnings
Bal. 56,000
Bal. 54,500
Accounts Receivable
Dividends
Bal. 41,000
9. 5,000
3a. 160,000
4. 900
Bal. 5,000
7. 161,000
Bal. 39,100
Sales Revenue
3a. 160,000
10a. 7,000
Allow. For Doubt. Acct.
Bal. 167,000
Bal. 2,500
4. 900
11. 1,600
Cost of Goods Sold
Bal. 3,200
3b. 91,000
10b. 4,000
Merchandise Inventory
Bal. 95,000
Bal. 78,000
2. 85,000
3b. 91,000
Operating Expenses
10b. 4,000
6. 19,000
Bal. 68,000
Bal. 19,000
Accts. Rec. Credit Cards
Uncoll. Acct. Expense
10a. 6,720
11. 1,600
Bal. 6,720
Bal. 1,600
Interest Receivable
Credit Card Expense
12. 480
10a. 280
Bal. 480
Bal. 280
Notes Receivable
Interest Revenue
5. 18,000
12. 480
Bal. 18,000
Bal. 480
7-42
EXERCISE 7-15A (cont.)
c.
Little Grocery Supplier
Financial Statements
For the Year Ended December 31, 2016
Income Statement
Sales Revenue
$167,000
Cost of Goods Sold
(95,000)
Gross Margin
72,000
Operating Expenses
Operating Expenses
$19,000
Uncollectible Accts. Expense
1,600
Credit Card Expense
280
Total Operating Expenses
(20,880)
Operating Income
51,120
Interest Revenue
480
Net Income
$51,600
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$50,000
Plus: Stock Issued
20,000
Ending Common Stock
$ 70,000
Beginning Retained Earnings
$54,500
Plus: Net Income
51,600
Less: Dividends
(5,000)
Ending Retained Earnings
101,100
Total Stockholders’ Equity
$171,100
7-43
EXERCISE 7-15A c. (cont.)
Little Grocery Supplier
Balance Sheet
As of December 31, 2016
Assets
Cash
$ 56,000
Accounts Receivable
$ 39,100
Less: Allowance for Doubtful Accounts
(3,200)
35,900
Merchandise Inventory
68,000
Accounts Receivable – Credit Cards
6,720
Interest Receivable
480
Notes Receivable
18,000
Total Assets
$185,100
Liabilities
Accounts Payable
$ 14,000
Total Liabilities
14,000
Stockholders’ Equity
Common Stock
$ 70,000
Retained Earnings
101,100
Total Stockholders’ Equity
171,100
Total Liabilities and Stockholders’ Equity
$185,100
7-44
EXERCISE 7-15A c. (cont.)
Little Grocery Supplier
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Inflow from Customers
$161,000
Outflow for Inventory
(92,000)
Outflow for Expenses
(19,000)
Net Cash Flow from Operating Activities
$50,000
Cash Flows From Investing Activities:
-0-
Outflow for Note Receivable
$(18,000)
Net Cash Flow from Investing Activities
(18,000)
Cash Flows From Financing Activities:
Inflow from Stock Issue
$ 20,000
Outflow for Dividend
(5,000)
Net Cash Flow from Financing Activities
15,000
Net Change in Cash
47,000
Plus: Beginning Cash Balance
9,000
Ending Cash Balance
$56,000
7-45
EXERCISE 7-16A
a. Accounts Receivable Turnover:
Calculate net accounts receivables:
Bergstrom: $790,000 – $15,800 = $774,200
