During the first year of operation, 2016, Direct Service Co. recognized $290,000 of service revenue on account. At the end of 2016, the accounts receivable balance was $46,000. For this first year in business, the owner believes uncollectible accounts expense will be about 1 percent of sales on account.

Required

a. What amount of cash did Direct Service collect from accounts receivable during 2016?

b. Assuming Direct Service uses the allowance method to account for uncollectible accounts, what amount should Direct Service record as uncollectible accounts expense for 2016?

c. Prepare the general journal entries to:

(1) Record service revenue on account.

(2) Record collections from accounts receivable.
(3) Record the entry to recognize uncollectible accounts expense.

d. What is the net realizable value of receivables at the end of 2016?

e. Show the effects of the transactions in Requirement c on the financial statements by recording the appropriate amounts in 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 for not affected.

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Assets =Liab. + Equity Rev.-Exp.-Net Inc. Cash Flow Cash Net Realizable Value of Receivables