This is for two questions….:

1) Determining account balances: percent of revenue allowance method of accounting for uncollectible accounts

The following information pertains to Leslie’s Floor Store sales on account and accounts receivable.

Accounts receivable balance, January 1, 2012 Allowance for doubtful accounts, January 1, 2012 Sales on account, 2012 Cost of goods sold, 2012

Collections of accounts receivable, 2012

$ 52,500 4,725 925,000 615,000 835,000

(ACC 201 200)

After several collection attempts, Leslie’s wrote off $3,100 of accounts that could not be collected. Leslie’s estimates that bad debts expense will be 0.5 percent of sales on account.

Required

a. Compute the following amounts. (1) Using the allowance method, the amount of uncollectible accounts expense for 2012. (2) Net realizable value of receivables at the end of 2012.

b. Explain why the uncollectible accounts expense amount is different from the amount that was written off as uncollectible.

2) Determination of account balances—percent of receivables allowance method of accounting for uncollectible accounts

During the first year of operation, 2012, Martin’s Appliance recognized $292,000 of service revenue on account. At the end of 2012, the accounts receivable balance was $57,400. Even though this is his first year in business, the owner believes he will collect all but about 4 percent of the ending balance.

Required

a. What amount of cash was collected by Martin’s during 2012? b. Assuming the use of an allowance system to account for uncollectible accounts, what amount

should Martin record as uncollectible accounts expense in 2012? c. What is the net realizable value of receivables at the end of 2012? d. Show the effect of the above transactions on the financial statements by recording the appropriate amounts in a horizontal statements model like the one shown here. When you record amounts in the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The letters NA indicate that an ele- ment is not affected by the event.