Accounting for notes receivable and uncollectible accounts using the percent of
ID: 2540737 • Letter: A
Question
Accounting for notes receivable and uncollectible accounts using the percent of sales allowance method Problem 5-26 LO 5-1, 5-4 The following transactions apply to Hooper Co. for 2018, its first year of operations: 1. Issued $60,000 of common stock for cash. 2. Provided $90,000 of services on account. 3. Collected $78,000 cash from accounts receivable. 4. Loaned $20,000 to Mosby Co. on November 30, 2018. The note had a one-year term to maturity and a 6 percent interest rate. 5. Paid S26,000 of salaries expense for the year 6. Paid a $2,000 dividend to the stockholders. 7. Recorded the accrued interest on December 31, 2018 (see item 4). 8. Estimated that 1 percent of service revenue will be uncollectible. Required a. Show the effects of these transactions in a horizontal statements model like the one shown as follows. Assets Equity Rev. Exp.Net Inc. Cash Flows Event Cash + Accts. Rec. - Allow. for Doubtful Accts + Notes Rec. + Int. Rec. = Com. St. + Ret. Earn. b. Prepare the income statement, balance sheet, and statement of cash flows for 2018.Explanation / Answer
a.
b.
Income Statement
64300
Balance Sheet:
Cash Flow:
Journal 1 Cash 60000 Common Stock 60000 2 Accounts Receivable 90000 Service Revenue 90000 3 Cash 78000 Accounts Receivable 78000 4 Note Receivable 20000 Cash 20000 5 Salaries Expense 26000 Cash 26000 6 Dividend (Will impact Retained Earning) 2000 Cash 2000 7 Interest Receivable 1200 Interest Revenue 1200 6% of 20000 8 Allowance for doubtful accounts 900 Estimated Bad Debt Exp 900 (1% of 90000)