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.

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

	LEACH INC. Income Statement For the Year Ended December 31, Year 2 Operating expenses Total operating expenses

	LEACH INC. Statement of Changes in Stockholders’ Equity For the Year Ended December 31, Year 2 Total stockholders’ equity

	LEACH INC. Balance Sheet As of December 31, Year 2 Assets Total assets Liabilities Stockholders’ equity Total stockholders' equity Total liabilities and stockholders' equity

	Net realizable value

Answer 1