Question

Required information Exercise 7-7A Effect of recognizing uncollectible accounts on the financial statements: percent of receivables allowance method LO 7-2 [The following information applies to the questions displayed below.] Leach Inc. experienced the following events for the first two years of its operations: Year 1 1. Issued $11,000 of common stock for cash 2. Provided $79,100 of services on account 3. Provided $37,000 of services and received cash 4. Collected $70,000 cash from accounts receivable. 5. Paid $39,000 of salaries expense for the year. 6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 6 percent of the ending accounts receivable balance will be uncollectible. 7. Closed the revenue account 8. Closed the expense account Year 2 1. Wrote off an uncollectible account for $700. 2. Provided $89,000 of services on account 3. Provided $33,000 of services and collected cash. 4. Collected $82,000 cash from accounts receivable. 5. Paid $66,000 of salaries expense for the year. 6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 6 percent of the ending accounts receivable balance will be uncollectible.

Answer 1

Income Statement
Revenue from service			$ 116,100.00
Operating expenses:
Salaries			$   39,000.00
Uncollectible accounts expense			$        546.00
Total operating expense			$   39,546.00
	Net Income		$   76,554.00

Statement of changes in equity
Beginning common stock			$               -
Issued during the year			$ 11,000.00
Ending common stock				$ 11,000.00
Beginning retained earnings			$               -
Net income transferred			$ 76,554.00
Ending retained earnings				$ 76,554.00
Total stockholder's equity				$ 87,554.00

Balance Sheet
Assets
Cash			$ 79,000.00
Accounts Receivable			$    9,100.00
Total Assets			$ 88,100.00
Liabilities			$       546.00
Stockholder's Equity
Common Stock			$ 11,000.00
Retained Earnings			$ 76,554.00
Total stockholder's equity			$ 87,554.00
Total stockholder's equity and liability			$ 88,100.00

Statement of Cash Flow
Cash flow from operating activities
Cash sales				$ 37,000.00
Collection from receivables				$ 70,000.00
Salaries expense paid				$ (39,000.00)
Net cash flow from operating activities					$ 68,000.00
Cash flow from investing activities					$               -
Cash flow from financing activities
Common stock issued					$ 11,000.00
Net Change in cash					$ 79,000.00
Beginning cash balance					$               -
Ending cash balance					$ 79,000.00