Question

The following trial balance was prepared for Tile, Etc., Inc., on December 31, 2016, after the closing entries were posted: Account Title Debit Credit Cash $ 195,000 Accounts Receivable 142,000 Allowance for Doubtful Accounts $ 26,500 Inventory 459,000 Accounts Payable 112,000 Common Stock 535,000 Retained Earnings 122,500 Totals $ 796,000 $ 796,000 Tile, Etc. had the following transactions in 2017: 1. Purchased merchandise on account for $665,000. 2. Sold merchandise that cost $505,000 for $1,060,000 on account. 3. Sold for $330,000 cash merchandise that had cost $194,000. 4. Sold merchandise for $275,000 to credit card customers. The merchandise had cost $130,000. The credit card company charges a 3 percent fee. 5. Collected $790,000 cash from accounts receivable. 6. Paid $695,000 cash on accounts payable. 7. Paid $162,000 cash for selling and administrative expenses. 8. Collected cash for the full amount due from the credit card company (see item 4). 9. Loaned $67,000 to J. Parks. The note had an 6 percent interest rate and a one-year term to maturity. 10. Wrote off $9,200 of accounts as uncollectible. 11. 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, 2017 (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 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Statement of Cash Flows, and Balance Sheet only: Items to be deducted must be indicated with a minus sign.) b. Compute the net realizable value of accounts receivable at December 31, 2017. 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

a. In the books of Tile Etc. Inc.

Transaction/ Event	Account Titles	Debit	Credit
		$	$
1.	Inventory	665,000
	Accounts Payable		665,000
2.	Accounts Receivable	1,060,000
	Sales Revenue		1,060,000
2.	Cost of Goods Sold	505,000
	Inventory		505,000
3.	Cash	330,000
	Sales Revenue		330,000
3.	Cost of Goods Sold	194,000
	Inventory		194,000
4.	Accounts Receivable	266,750
	Credit Card Expense	8,250
	Sales Revenue		275,000
4.	Cost of Goods Sold	130,000
	Inventory		130,000
5.	Cash	790,000
	Accounts Receivable		790,000

Contd.

6.	Accounts Payable	695,000
	Cash		695,000
7.	Selling and Administrative Expense	162,000
	Cash		162,000
8.	Cash	266,750
	Accounts Receivable		266,750
9.	Note Receivable	67,000
	Cash		67,000
10.	Allowance for Doubtful Accounts	9,200
	Accounts Receivable		9,200
11. a.	Uncollectible Accounts Expense	13,350
	Allowance for Doubtful Accounts		13,350
b.	Interest Receivable	2,345
	Interest Revenue		2,345

Tile Etc. Inc.

Income Statement

For the year ended December 31, 2017

Sales Revenue	$ 1,665,000
Cost of Goods Sold	829,000
Gross Profit		$ 836,000
Operating Expenses
Selling and Administrative Expense	162,000
Credit Card Expense	8,250
Uncollectible Accounts Expense	13,350
Total Operating Expenses		183,600
Operating Income		652,400
Interest Revenue		2,345
Net Income		654,745

Tile Etc Inc.

Statement of Changes in Stockholders' Equity

For the year ended December 31, 2017

Common Stock	$ 535,000
Retained Earnings	122,500
Total Stockholders' Equity, December 31, 2016	$ 657,500
Add: Net Income for the period	654,745
Total Stockholders' Equity, December 31, 2017	$ 1,312,245

Tile Etc. Inc.

Balance Sheet

December 31, 2017

Assets		$	Liabilities and Stockholders' Equity		$
Cash		657,750	Accounts Payable		82,000
Accounts Receivable	402,800
Allowance for Doubtful Accounts	(30,650)	372,150	Stockholders' Equity		1,312,245
Inventory		295,000
Note Receivable		67,000
Interest Receivable		2,345
Total Assets		1,394,245	Total Liabilities and Stockholders' Equity		1,394,245

b. Net realizable value of accounts receivable at December 31, 2017: $ 372,150