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 $ 165,000 Accounts Receivable 136,000 Allowance for Doubtful Accounts $ 23,500 Inventory 447,000 Accounts Payable 106,000 Common Stock 505,000 Retained Earnings 113,500 Totals $ 748,000 $ 748,000 Tile, Etc. had the following transactions in 2017: 1. Purchased merchandise on account for $635,000. 2. Sold merchandise that cost $475,000 for $1,000,000 on account. 3. Sold for $300,000 cash merchandise that had cost $182,000. 4. Sold merchandise for $245,000 to credit card customers. The merchandise had cost $118,000. The credit card company charges a 3 percent fee. 5. Collected $730,000 cash from accounts receivable. 6. Paid $665,000 cash on accounts payable. 7. Paid $156,000 cash for selling and administrative expenses. 8. Collected cash for the full amount due from the credit card company (see item 4). 9. Loaned $61,000 to J. Parks. The note had an 6 percent interest rate and a one-year term to maturity. 10. Wrote off $8,600 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? 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 $ 165,000 Accounts Receivable 136,000 Allowance for Doubtful Accounts $ 23,500 Inventory 447,000 Accounts Payable 106,000 Common Stock 505,000 Retained Earnings 113,500 Totals $ 748,000 $ 748,000 Tile, Etc. had the following transactions in 2017: 1. Purchased merchandise on account for $635,000. 2. Sold merchandise that cost $475,000 for $1,000,000 on account. 3. Sold for $300,000 cash merchandise that had cost $182,000. 4. Sold merchandise for $245,000 to credit card customers. The merchandise had cost $118,000. The credit card company charges a 3 percent fee. 5. Collected $730,000 cash from accounts receivable. 6. Paid $665,000 cash on accounts payable. 7. Paid $156,000 cash for selling and administrative expenses. 8. Collected cash for the full amount due from the credit card company (see item 4). 9. Loaned $61,000 to J. Parks. The note had an 6 percent interest rate and a one-year term to maturity. 10. Wrote off $8,600 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

TILE ETC., INC.
General Journal for the year ended December 31, 2017
Ref	Account Title	Debit	Credit
1	Inventory	635000
	Accounts Payables		635000
2a	Accounts Receivable	1000000
	Sales		1000000
2b	Cost of goods sold	475000
	Inventory		475000
3a	Cash	300000
	Sales		300000
3b	Cost of goods sold	182000
	Inventory		182000
4a	Accounts Receivable - Credit card	237650
	Card Charges	7350
	Sales		245000
4b	Cost of goods sold	118000
	Inventory		118000
5	Cash	730000
	Accounts Receivable		730000
6	Accounts Payables	665000
	Cash		665000
7	Selling and administrative Expenses	156000
	Cash		156000
8	Cash	237650
	Accounts Receivable - Credit card		237650
9	Note Receivable	61000
	Cash		61000
10	Allowance for doubtful accounts	8600
	Accounts Receivable		8600
11a	Bad Debt Expense	10000
	Allowance for doubtful accounts		10000
11b	Interest Receivable	2135
	Interest Revenue		2135

t-accounts

Cash					Accounts Receivable
Ref	Debit	Credit	Ref		Ref	Debit	Credit	Ref
Beg.Bal.	165000	665000	6		Beg.Bal.	136000	730000	5
3a	300000	156000	7		2a	1000000	8600	10
5	730000	61000	9			1136000	738600
8	237650				End.Bal.	397400
	1432650	882000
End.Bal.	550650				Accounts Receivable - Credit card
					Ref	Debit	Credit	Ref
					4a	237650	237650	8
Allowance for Doubtful accounts					Inventory
Ref	Debit	Credit	Ref		Ref	Debit	Credit	Ref
10	8600	23500	Beg.Bal.		Beg.Bal.	447000	475000	2b
		10000	11a		1	635000	182000	3b
							118000	4b
	8600	33500				1082000	775000
		24900	End.Bal.		End.Bal.	307000
Accounts Payable					Common Stock
Ref	Debit	Credit	Ref		Ref	Debit	Credit	Ref
6	665000	106000	Beg.Bal.				505000	Beg.Bal.
		635000	1
	665000	741000				0	505000
		76000	End.Bal.				505000	End.Bal.
Retained Earnings					Sales
Ref	Debit	Credit	Ref		Ref	Debit	Credit	Ref
		113500	Beg.Bal.				1000000	2a
			1				300000	3a
	0	113500					245000	4a
		113500	End.Bal.			0	1545000
							1545000	End.Bal.
Cost of goods sold					Card expenses
Ref	Debit	Credit	Ref		Ref	Debit	Credit	Ref
2b	475000				4a	7350
3b	182000
4b	118000
	775000	0				7350	0
End.Bal.	775000				End.Bal.	7350
Selling And Admn.expenses					Note Receivable
Ref	Debit	Credit	Ref		Ref	Debit	Credit	Ref
7	156000				9	61000
End.Bal.	156000
						61000	0
					End.Bal.	61000
Bad Debt Expense
Ref	Debit	Credit	Ref		Interest Receivable
11a	10000				Ref	Debit	Credit	Ref
End.Bal.	10000				11b	2135
					End.Bal.	2135
Interest Revenue
Ref	Debit	Credit	Ref
		2135	11b

TILE ETC., INC.
Income Statement
for the year ended December 31, 2017
Sales Revenue		1545000
Interest Revenue		2135
Total Revenue		1547135
Cost of goods sold		775000
Gross profit		772135
Expenses:
Seling and administrative expenses	156000
Card expenses	7350
Bad Debt Expense	10000
Total Expenses		173350
Net income		598785
TILE ETC., INC.
Balance Sheet
as at December 31, 2017
Assets
Cash		550650
Accounts Receivable	397400
Allowance for doubtful accounts	24900	372500
Inventory		307000
Interest Receivable		2135
Note Receivable		61000
Total Assets		1293285
Liabilities and stockholders' equity
Accounts Payable		76000
Common stock		505000
Retained Earnings
Balance as at Jan.1	113500
Net income for the year	598785
Balance as at Dec.31		712285
Total liabilities and stockholders equity		1293285

b. Net realizable value of accounts Receivable = $372,500

Accounts receivable as at Dec.31		397400
Allowance for doubtful ccounts		24900
Net realizable value		372500