Question

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 $29,000 of common stock for cash.
2. Provided $98,900 of services on account.
3. Provided $55,000 of services and received cash.
4. Collected $88,000 cash from accounts receivable.
5. Paid $57,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 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 $840.
2. Provided $107,000 of services on account.
3. Provided $51,000 of services and collected cash.
4. Collected $100,000 cash from accounts receivable.
5. Paid $84,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.

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 $29,000 of common stock for cash.
2. Provided $98,900 of services on account.
3. Provided $55,000 of services and received cash.
4. Collected $88,000 cash from accounts receivable.
5. Paid $57,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 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 $840.
2. Provided $107,000 of services on account.
3. Provided $51,000 of services and collected cash.
4. Collected $100,000 cash from accounts receivable.
5. Paid $84,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts

	Cash Common Stock Beg. Bal. Beg. Bal. End. Bal. End. Bal. Accounts Receivable Retained Earnings Beg. Bal. Beg. Bal. End. Bal. 0 End. Bal. Allowance for Doubtful Accounts Service Revenue Beg. Bal. Beg. Bal. End. Bal. Bal. End. Bal. Uncoll. Accts. Expense Salaries Expense Beg. Bal. Beg. Bal. Bal. Bal. End. Bal.

Answer 1

Year 1:		(Amount in $)
	Debit	Credit
Cash A/c Dr	29,000.00
To Capital A/c		29,000.00
(Being capital issued)
Accounts receivable A/c Dr	98,900.00
To services a/c		98,900.00
(Being services rendered on account)
Cash A/c Dr	55,000.00
To services a/c		55,000.00
(Being services rendered on cash)
Cash A/c Dr	88,000.00
To accounts receivable a/c		88,000.00
(Being amount collected on accounts receivable)
Salaries expenses a/c Dr	57,000.00
To cash a/c		57,000.00
(Being salaries paid)
Bad and doubtful debts a/c Dr	545.00
To Provision for bad and doubtful debts a/c		545.00
(Being provision created for uncollectable on the closing balance i.e on 10,900 is 5%)

Accounts receivable
	Debit		Credit
To Services	98,900.00	cash	88,000.00
		bal c/d	10,900.00
Services A/c
	Debit		Credit
		by Accounts receivable	98,900.00
To profit and loss account	153,900.00	by cash	55,000.00
	153,900.00		153,900.00
Bad and doubtful debts a/c
	Debit		Credit
To provision for bad and doubtful debts	545.00	By Profit and loss a/c	545.00
	545.00		545.00

Provision for bad and doubtful debts
	Debit		Credit
To bal c/d	545.00	Bad and doubtful debts	545.00
	545.00		545.00
Cash A/c
	Debit		Credit
To captial	29,000.00	Salaries expenses	57,000.00
To services	55,000.00
To accounts receivable	88,000.00	bal c/d	115,000.00
	172,000.00		172,000.00
Salaries A/c
	Debit		Credit
To cash	57,000.00	By Profit and loss a/c	57,000.00
	57,000.00		57,000.00

Year 2:

Year 2:	Debit	Credit
Provision for bad and doubtful debts a/c Dr	840.00
To Accounts receivable A/c		840.00
(Being accounts receivable w/o)
Accounts receivable A/c Dr	107,000.00
To services a/c		107,000.00
(Being services rendered on account)
Cash A/c Dr	51,000.00
To services a/c		51,000.00
(Being services rendered on cash)
Cash A/c Dr	100,000.00
To accounts receivable a/c		100,000.00
(Being amount collected on accounts receivable)
Salaries expenses a/c Dr	84,000.00
To cash a/c		84,000.00
(Being salaries paid)
Bad and doubtful debts a/c Dr	853.00
To Provision for bad and doubtful debts a/c		853.00
(Being provision created for uncollectable on the closing balance i.e on 17,060 is 5%)

Accounts receivable
	Debit		Credit
to bal b/d	10,900.00	cash	100,000.00
		Provision for bad and dobtful debts	840.00
To services	107,000.00	bal c/d	17,060.00
Services A/c
	Debit		Credit
		by Accounts receivable	107,000.00
To profit and loss account	158,000.00	by cash	51,000.00
	158,000.00		158,000.00
Bad and doubtful debts a/c
	Debit		Credit
To provision for bad and doubtful debts	853.00	By Profit and loss a/c	853.00
	853.00		853.00

Provision for bad and doubtful debts
	Debit		Credit
To Accounts receivable	840.00	By bal b/d	545.00
		Bad and doubtful debts	853.00
To bal c/d	558.00
Cash A/c
	Debit		Credit
	-	Salaries expenses	84,000.00
To services	51,000.00
To accounts receivable	100,000.00	bal c/d	115,000.00
	151,000.00		199,000.00
Salaries A/c
	Debit		Credit
To cash	84,000.00	By Profit and loss a/c	84,000.00
	84,000.00		84,000.00