Question

Leach Inc. experienced the following events for the first two years of its operations: Year 1: 1. Issued $10,000 of common stock for cash. 2. Provided $100,000 of services on account. 3. Provided $31,000 of services and received cash. 4. Collected $69,000 cash from accounts receivable. 5. Paid $16,000 of salaries expense for the year. 6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 7 percent of the ending accounts receivable balance will be uncollectible. Year 2: 1. Wrote off an uncollectible account for $670. 2. Provided $120,000 of services on account. 3. Provided $30,000 of services and collected cash. 4. Collected $102,000 cash from accounts receivable. 5. Paid $24,000 of salaries expense for the year. 6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 7 percent of the ending accounts receivable balance will be uncollectible.

Answer 1

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Leach Inc.
Year 1	Asset	=	Liabilities		Equity	Account title for Retained Earnings
Event	Cash	+	NRV Accounts Receivable	=	+	Common Stock	+	Retained Earnings
Balance		+		=		+		+
1.	10,000.00	+		=		+	10,000.00	+
2.		+	100,000.00	=		+		+	100,000.00	Service Revenue
3.	31,000.00	+		=		+		+	31,000.00	Service Revenue
4.	69,000.00	+	(69,000.00)	=		+		+
5.	(16,000.00)	+				+		+	(16,000.00)	Salaries Expense
6.		+	(2,170.00)			+		+	(2,170.00)	Other operating expense
End Bal.	94,000.00	+	28,830.00	=		+	10,000.00	+	112,830.00

Calculation of uncollectible amount	Amount $
Account receivable closing	31,000.00
Uncollectible %	7.00%
Uncollectible amount for year 1	2,170.00

Income Statement	Amount $	Amount $
Service Revenue		131,000.00
Operating expense
Salaries Expense	16,000.00
Bad debt expense	2,170.00
Total Operating expense		18,170.00
Net Income		112,830.00
Statement of changes in Stockholder's Equity	Amount $	Amount $
Beginning Common Stock	10,000.00
Add: Common Stock issued	-
Ending Common Stock		10,000.00
Beginning Retained Earnings	-
Add: Net Income	112,830.00
Ending Retained Earnings		112,830.00
Total Stockholder's Equity		122,830.00
Balance Sheet	Amount $	Amount $
Assets
Cash	94,000.00
Accounts Receivable	31,000.00
Allowance for uncollectible accounts	(2,170.00)
Total Assets		122,830.00
Liabilities		-
Stockholder's Equity
Common Stock	10,000.00
Retained Earnings	112,830.00
Total Stockholder's Equity		122,830.00
Total Liabilities & Stockholder's Equity		122,830.00
Statement of cash flows	Amount $	Amount $
Cash flow from operating activities
Cash sales	31,000.00
Inflow from customers	69,000.00
Payment for salaries	(16,000.00)
Net Cash flow from operating activities		84,000.00
Cash flow from investing activities		-
Cash flow from financing activities
Common stock issued	10,000.00
Cash flow from financing activities		10,000.00
Net Change in cash		94,000.00
Add: Beginning cash balance		-
Ending cash balance		94,000.00

Net realizable value of Accounts Receivable	Amount $
Accounts Receivable	31,000.00
Less: Allowance for uncollectible accounts	2,170.00
Net realizable value of Accounts Receivable	28,830.00