Hogan Business Systems has a small number of sales on account but is mostly a cash business. Consequently, it uses the direct write-off method to account for uncollectible accounts. During 2006 Hogan Business Systems earned \($32,000\) of cash revenue and \($8,000\) of revenue on account. Cash operating expenses were \($26,500\) . After numerous attempts to collect a \($250\) account receivable from Sam Smart, the account was determined to be uncollectible in 2007.

Required:

a. Record 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 Hogan Business Systems report on the 2006 income statement?

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Assets Cash + Accts. Rec. = Liab. Equity Rev. - Exp. = Net Inc. Cash Flow