During the first year of operation, 2016, Home Renovation recognized $261,000 of service revenue on account. At the end of 2016, the accounts receivable balance was $46,300. 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 Home Renovation during 2016?

b. Assuming the use of an allowance system to account for uncollectible accounts, what amount should Home Renovation record as uncollectible accounts expense in 2016?

c. Prepare the journal entries to

(1) Record service revenue on account.

(2) Record collection of 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 effect of the transactions listed in Requirement c 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 element is not affected by the event.

Transcribed Image Text:

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