Question

Rosie Dry Cleaning was started on January 1, Year1. It experienced the following events during its first two years of operations:

Events Affecting Year 1:

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 Year 2:

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). Record the events for Year 1 in T-accounts.

b). Determine the following amounts:

1). Net income for Year 1

2). Net cash flow from operating activities for Year 1.

3). Balance of accounts receivable at the end of Year 1.

4). Net realizable value of accounts receivable at the end of Year 1.

c). Repeat Requirements a and b for the Year 2 accounting period.

Answer 1

Answer . The Ergy cleans was started on Jane yeu events thought during it forit too yecor Events Affecting year! .. The cleaning Services on account 45000 Torade recivert Account Coo) z lesoca income on cleaning Serin ((x) = 4.500 cleaning Service provided . 7 the cash from Ac receivable 39000 1 . cash Ale ) = 34000 To Trade reivable Al @): 2900 Cash Recived for the debtoo's

② - ... the accounting records to reflect the etimate Bad debts Al (D) 450 to provislar to bad debts = 450 provision made * Event Affecting year 2 0 Account receivable that was determie 300 Income from cleaning service. = 45000 Less bad debts Leso Incom - 44550 . cleaning 62000 & service account Net cash flow is 39000 that received from the deblom Balance of accoul recived L5000 - 3900 9000

Net salirdlé valere 5000-450 24650 co Provisten for bad beto ak (P) = 300 Toad Receivable Alc. c) = 300 debtors written off o cleaning seance an account 82000! Trade receivable Alc (20) = 62000 to income on cleaning service () = 62000 ② cleaning from account receivable 261000 Cash Alo eo) 61000 to Trade receivable Ale cer) = 61000 . .. cash Received from debtors

The acounting Seconds to refled the estimate that oncollectible accounts expense Bad debts Al pr) 620 to provision from bad debde 620 provistar Created from bred debts the incom - 62000 Bad debts = 620 = 62000 620 = 61380 . . @ The cash flows - collected dabtors $6,000 6 The Trade recavable balance is opening Balance = 5 000 300 +62000-61000 7700 1000 25700

w The net realizable value is Debtor balance = 5700 the Less previous year praiso : 150 Less worst year = 620 = 5700- (150 +620) = 5700 - 770 4930