Question

Holmes Cleaning Service began operation on January 1, Year 1.   The company experienced the following events...

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

  1. Provided $84,000 of cleaning services on account.
  2. Provided $16,000 of cleaning services for cash.
  3. Collected $76,000 cash from Accounts Receivable.
  4. Paid salaries of $28,500 for the year.
  5. Adjusted the accounts to reflect management’s expectations that Uncollectible Accounts Expense would be 2%. The expense was determined using the percent of revenue method.
  6. Wrote off uncollectible accounts of $1,500.
  7. Collected $1,000 cash from Accounts Receivable that was written off in #6.

1. Which event results in a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts?

2. Which event results in a debit to Allowance for Doubtful Accounts and a credit Accounts Receivable?

3. What is the value of the Uncollectible Accounts Expense?

4. How much Net Income did Holmes earn in Year 1?

5. What is the value of Total Assets on the Year 1 Balance Sheet?

6. What is the Net Cash Flows from Operating Activities?

Homework Answers

Answer #1
Event Account Debit Credit
1 Accounts Receviable      84,000
Revenue - Cleaning Services      84,000
2 Cash      16,000
Revenue - Cleaning Services      16,000
3 Cash      76,000
Accounts Receviable      76,000
4 Salaries      28,500
Cash      28,500
5 Uncollectible Accounts Expense (84000*2%)         1,680
Allowance for Doubtful Accounts         1,680
6 Allowance for Doubtful Accounts         1,500
Accounts Receviable         1,500
7 Cash         1,000
Allowance for Doubtful Accounts         1,000
1 Event 5 results in a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts
2 Event 6 results in a debit to Allowance for Doubtful Accounts and a credit Accounts Receivable
3 Value of Uncollectible Accounts Expense is 1,680 (See Event 5)
4 Net Income of Holmes is $ 69,820 (Revenue- Salaries - Uncollectible Accounts Expense ) (84000+16000-28500-1680)
5 Total Assets of Holmes is 69,820 (Cash - 64,500 , Accounts Receivables Less Allowance for Doubtful Accounts (6500-1180))
6 Net Cash Flows from Operating Activities is 64,500 (i.e Net Cash Generated out of Operating Activity is 64,500)
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