Chapter 7 Accounting for Bad Debts Problem 7-1 - Accounting for Bad Debts ...
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Chapter 7 Accounting for Bad Debts Problem 7-1 - Accounting for Bad Debts
The Solo Company was started on January 1, 2010. The following events occurred during 2010 and 2011.
2010
1. Provided $4,000 of services on account.
2. Collected $3,000 cash from accounts receivable.
3. Estimated uncollectible accounts expense to be 1.5% of 2010 credit sales.
2011
1. Wrote off $40 of accounts receivable that were deemed uncollectible.
2. Provided $6,500 of services on account.
3. Collected $5,400 cash from accounts receivable.
4. Received $5 from a bad debt that had been previously written off. Reinstated the account.
5. Recorded the $5 cash received from the receivable reinstated in Event No. 4.
6. Estimated uncollectible accounts expense to be 1% of 2011 credit sales.
Required
a. Record the events in T-accounts, including closing the revenue and expense accounts to retained earnings.
b. Record the events using the horizontal financial statements model under the titles of the affected accounts. Record a zero under each heading not affected by a given event. Compare the final balances in the T-accounts from Part a with the ending balances in the horizontal financial statements model.
Problem 7-1 Workpaper, part a. T-accounts, 2010
Ledger T-Accounts
Cash
Liabilities
Retained Earnings
Bal. 3,000
3,940 Bal.
Accounts Receivable
Services Revenue
Bal. 1,000
960
Allow. for Doubt. Accts.
Bad Debts Expense
60 Bal.
Problem 7-1Workpaper, part b. Horizontal Financial Statements Model, 2010
Event
Assets
=
Liab.
+
Equity
Rev.
Exp.
=
Net Inc.
Cash Flow
No.
Cash
+
Accts. Rec.
+
(Allow.)
=
Ret. Earn.
Beg. bal.
0
+
0
+
0
=
0
+
0
0
0
=
0
0
1.
0
+
+
=
+
=
2.
+
+
=
+
=
3.
+
+
=
+
=
Totals
3,000
+
1,000
+
(60)
=
0
+
3,940
4,000
60
=
3,940
3,000 NC
Problem 7-1 Workpaper, part a. T-accounts, 2011
Ledger T-Accounts
Cash
Liabilities
Retained Earnings
Bal. 3,000
0
3,940 Bal.
0
0
10,375
Bal. 8,405
0
Accounts Receivable
Services Revenue
Bal. 1,000
0
Bal. 2,060
0
Allow. for Doubt. Accts.
Bad Debts Expense
60 Bal.
0
0
90 Bal.
Problem 7-1Workpaper, part b. Statements Model, 2011
Event
Assets
=
Liab.
+
Equity
Rev.
Exp.
=
Net Inc.
Cash Flow
No.
Cash
+
Accts. Rec.
+
(Allow.)
=
Ret. Earn.
Beg. bal.
3,000
+
1,000
+
(60)
=
0
+
3,940
0
0
=
0
0
1.
+
+
=
+
=
2.
+
+
=
+
=
3.
+
+
=
+
=
4.
+
+
=
+
=
5.
+
+
=
+
=
6.
+
+
=
+
=
Totals
8,405
+
2,060
+
(90)
=
0
+
10,375
6,500
65
=
6,435
5,405 NC
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