Question

Patel Service Co. does make a few sales on account but is mostly a cash business....

Patel Service Co. does make a few sales on account but is mostly a cash business. Consequently, it uses the direct write-off method to account for uncollectible accounts. During Year 1, Patel Service Co. earned $31,200 of cash revenue and $7,800 of revenue on account. Cash operating expenses were $29,756. After numerous attempts to collect a $256 account receivable from Sam Stephens, the account was determined to be uncollectible in Year 1.

Required:
a. Show the effects of (1) cash revenue, (2) revenue on account, (3) cash expenses, and (4) write off of the uncollectible account on the financial statements using a horizontal statements model like the one shown here. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element is not affected by the event.
b. What amount of net income did Patel Service Co. report on the Year 1 income statement?
c. Prepare the general journal entries for the four accounting events listed in Requirement a.


  Show the effects of (1) cash revenue, (2) revenue on account, (3) cash expenses, and (4) write off of the uncollectible account on the financial statements using a horizontal statements model like the one shown here. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element is not affected by the event. (Enter any decreases to account balances with a minus sign.)

What amount of net income did Patel Service Co. report on the Year 1 income statement?

Journal entry worksheet

  • Record cash received for service revenue.
  • Record services on account.
  • Record cash paid for operating expenses.
  • Record entry for uncollectible accounts expenses.

Homework Answers

Answer #1

a.

B/S

Income St.

Assets

=

Liabilities

+

Stock Holders' Equity

Revenues

-

Expenses

=

Net Income

Cash Flows

Activity

Event

Cash

+

A/R

=

+

-

=

1

$31,200

+

=

+

$31,200

$31,200

-

=

$31,200

$31,200

OA

2

+

$7,800

=

+

$7,800

$7,800

-

=

$7,800

NA

3

-$29,756

+

=

+

-$29,756

-

$29,756

=

-$29,756

-$29,756

OA

4

+

-$256

=

+

-$256

-

$256

=

-$256

NA

$1,444

$7,544

$8,988

$39,000

$30,012

$8,988

$1,444

b.

Net Income

=

$8,988

c.

PATEL SERVICE CO.

Journal

No.

Transaction

Debit

Credit

1

Cash

$31,200

Service Revenue

$31,200

2

Accounts Receivabes

$7,800

Service Revenue

$7,800

3

Operating Expense

$29,756

Cash

$29,756

4

Uncollectible Accounts ( Bad debts ) Expense

$256

Accounts Receivables

$256

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