Question

The following trial balance was prepared for Tile, Etc., Inc., on December 31, Year 1, after the closing entries were posted:

Account Title	Debit			Credit
Cash	$	125,000
Accounts Receivable		128,000
Allowance for Doubtful Accounts				$	19,500
Inventory		431,000
Accounts Payable					98,000
Common Stock					465,000
Retained Earnings					101,500
Totals	$	684,000		$	684,000

Tile, Etc. had the following transactions in Year 2:

Purchased merchandise on account for $595,000.

Sold merchandise that cost $435,000 for $920,000 on account.

Sold for $260,000 cash merchandise that had cost $166,000.

Sold merchandise for $205,000 to credit card customers. The merchandise had cost $102,000. The credit card company charges a 3 percent fee.

Collected $650,000 cash from accounts receivable.

Paid $625,000 cash on accounts payable.

Paid $148,000 cash for selling and administrative expenses.

Collected cash for the full amount due from the credit card company (see item 4).

Loaned $75,000 to J. Parks. The note had an 6 percent interest rate and a one-year term to maturity.

Wrote off $7,800 of accounts as uncollectible.

Made the following adjusting entries:

(a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account.

(b) Recorded seven months of accrued interest on the note at December 31, Year 2 (see item 9).

Required
a. Prepare general journal entries for these transactions; post the entries to T-accounts; and prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for Year 2.
b. Compute the net realizable value of accounts receivable at December 31, Year 2.
c. If Tile, Etc. used the direct write-off method, what amount of uncollectible accounts expense would it report on the income statement?
  

Answer 1

Journal Entries
Date	Account Titles	Amount Dr.	Amount Cr.
	Inventory	595000
	Accounts Payable		595000
	Accounts Receivable	920000
	Sales		920000
	Cost of Goods Sold	435000
	Inventory		435000
	Cash	260000
	Sales		260000
	Cost of Goods Sold	166000
	Inventory		166000
	Accounts Receivable	198850
	Credit Card charges	6150
	Sales		205000
	Cost of Goods Sold	102000
	Inventory		102000
	Cash	650000
	Accounts Receivable		650000
	Accounts Payable	625000
	Cash		625000
	Selling and Administrative expenses	148000
	Cash		148000
	Cash	198850
	Accounts Receivable		198850
	6% One year Notes Receivable	75000
	Cash		75000
	Allowances for Doubtful debts	7800
	Accounts Receivable		7800
a.	Allowances for Doubtful debts	2500
	Income Summary		2500
b.	Interest Receivable	3937.5
	Interest Revenue		3937.5

Cash Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Beginning Balance	125,000		Accounts Payable	625,000
	Sales	260,000		Selling and Administrative expenses	148,000
	Account Receivable	650,000		6% One year Notes Receivable	75,000
	Account Receivable	198,850		Ending Cash balance	385,850
		1,233,850			1,233,850
Account Receivable Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Beginning Balance	128,000		Cash	650,000
	Sales	920,000		Cash	198,850
	Sales	198,850		Allowances for Doubtful accounts	7,800
				Ending Blance	390,200
		1,246,850			1,246,850
Allowances for Doubtful accounts
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Accounts Receivable	7,800		Beginning Balance	19,500
	Income Summary	2,500
	Ending Balance	9,200
		19,500			19,500
Inventory Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Beginning Balance	431,000		Cost of Goods Sold	435,000
	Accounts Payable	595,000		Cost of Goods Sold	166,000
				Cost of Goods Sold	102,000
				Ending Balance	323,000
		1,026,000			1,026,000
Accounts Payable Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Cash	625,000		Beginning Balance	98,000
	Ending Balance	68,000		Inventory	595,000
		693,000			693,000
Common stock Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Ending Balance	465,000		Beginning Balance	465,000
Retained Earnings Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Ending Balance	635,788		Beginning Balance	101,500
				Income Summary	530,350
				Interest Revenue	3,938
		635,788			635,788
Cost of Goods Sold Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Inventory	435,000		Income Summary	703,000
	Inventory	166,000
	Inventory	102,000
		703,000			703,000
Sales Account
Date	Account Title	Amount Dr.	Date	Account Title	Amount Cr.
	Income Summary	1,385,000		Account Receivable	920,000
				Cash	260,000
				Credit Card charges	6,150
				Account Receivable	198,850
		1,385,000			1,385,000

Statement of Changes of Stock holders equity
	Beginning	Ending	Change	% of change
Common stock	465000	465000	0	0
Retained Earnings	101500	635787.5	534287.5	5.263916

BalanceSheet
Cash	385,850	Accounts Payable	68,000
Account Receivable	390,200	Allowances for Doubtful accounts	9,200
Interest Receivable	3,938	Common stock	465,000
Inventory	323,000	Retained Earnings	635,787.50
6% One year Notes Receivable	75,000
Total Assets	1,177,987.50	Total Liabilities	1,177,987.50