Question

Leach Inc. experienced the following events for the first two years of its operations:

Year 1:

1. Issued $17,000 of common stock for cash.
2. Provided $85,700 of services on account.
3. Provided $43,000 of services and received cash.
4. Collected $76,000 cash from accounts receivable.
5. Paid $45,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 4 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 $750.
2. Provided $95,000 of services on account.
3. Provided $39,000 of services and collected cash.
4. Collected $88,000 cash from accounts receivable.
5. Paid $72,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 4 percent of the ending accounts receivable balance will be uncollectible.

b. Prepare the income statement, statement of changes in stockholders’ equity, and balance sheet for Year 1. (Balance Sheet only: Items to be deducted must be indicated with a minus sign.)
  

Answer 1

Solution:

Leach Inc.
Income statement
For the year ended December 31, Year 1
Sales Revenue		128700
Operating expenses:
Salaries expense	45000
Uncollectibe accounts expense [(85700-76000)*4%]	388
Total Operating expenses		45388
Net Income		83312

Leach Inc.
Statement of chanages in Stockholders' Equity
For the year ended December 31, Year 1
Beginning Common stock	0
Add: Common stock Issued	17000
Ending Common stock		17000
Beginning Retained earnings	0
Add: Net Income	83312
Ending Retained Earnings		83312
Total Stockholders' Equity		100312

Leach Inc.
Balance Sheet
As of December 31, Year 1
Assets:
Cash (17000+43000+76000-45000)	91000
Accounts Recievable	9700
Allowance for uncollectible account	-388
Total Assets		100312
Liabilities		0
Stockholders' Equity:
Common Stock	17000
Retained earnings	83312
Total Stockholders' Equity		100312
Total Liabilities and Stockholders' Equity		100312

Leach Inc.
Statement of Cash flows
For the year ended December 31, Year 1
Cash Flows from Operating Activities
Cash collection from customers (43000+76000)	119000
Cash payment for salaries	-45000
Net cash flows from operating activities		74000
Cash Flows from Investing Activities		0
Cash Flows from Financing Activities:
Proceeds from issue of common stock		17000
Net change in cash		91000
Beginning cash balance		0
Ending Cash balance		91000