Question

Holmes Cleaning Service began operation on January 1, Year 1. The company experienced the following events for its first year of operations:

Events Affecting Year 1:

1. Provided $170,000 of cleaning services on account.
2. Collected $127,500 cash from accounts receivable.
3. Paid salaries of $44,000 for the year.
4. Adjusted the accounts to reflect management’s expectations that uncollectible accounts expense would be $1,900. The expense was determined using the percent of revenue method.

c. Prepare an income statement, balance sheet, and statement of cash flows for Year 1. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)
  

	HOLMES CLEANING SERVICE Income Statement For the Year Ended December 31, Year 1 Service revenue $170,000 Operating expenses Salaries expense $44,000 Uncollectible accounts expense 1,900 Total operating expenses 45,900 Net income $124,100

	HOLMES CLEANING SERVICE Balance Sheet As of December 31, Year 1 Assets Cash $83,500 Accounts receivable $43,000 Less: Allowance for doubtful accounts 43,000 Total assets $126,500 Liabilities $0 Stockholders’ equity Retained earnings $124,100 Total stockholders' equity 124,100 Total liabilities and stockholders' equity $124,100

HOLMES CLEANING SERVICE Statement of Cash Flows For the Year Ended December 31, Year 1 Cash flow from operating activities Cash inflow from customers $127,500 Cash outflow for expenses (44,000) 0 Net cash flow from operating activities $83,500 Cash flows from investing activities 0 Cash flows from financing activities 0 Net change in cash 83,500 Plus: Beginning cash balance 0 Ending cash balance $83,500

Answer 1