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Chapter 7

The Flatiron Pub provides catering services to local businesses. The following information was available for The Flatiron for the years ended December 31, 2010 and 2011.

	31-Dec-10	31-Dec-11
Cash	$ 2,000	$ 1,685
Accounts receivable	46,000	?
Allowance for doubtful accounts	550	?
Other current assets	8,500	7,925
Current liabilities	37,000	44,600
Total credit sales	205,000	255,000
Collections on accounts receivable	190,000	228,000

Flatiron management is preparing for a meeting with its bank concerning renewal of a loan and has collected the following information related to the above balances.

1. The cash reported at December 31, 2011, reflects the following items: petty cash $1,575 and postage stamps $110. The Other Assets balance at 12/31/11 includes the checking account balance of $4,000.

2. On November 30, 2011 Flatiron agreed to accept a 6-month, $5,000 note bearing 12% interest, payable at maturity, from a major client in settlement of a $5,000 bill. The above balances do not reflect this transaction.

3. Flatiron factored some accounts receivable at the end of 2011. It transferred accounts totaling $10,000 to Final Factor, Inc. with recourse. Final Factor will receive the collections from Flatiron's customers and will retain 2% of the balances. Final Factor assesses Flatiron a finance charge of 3% on this transfer. The fair-value of the recourse obligation is $400. However, management has determined that the amount due from the factor and the fair-value of the resource obligation have not been recorded and neither are included in the balances above.

4. Flatiron charged off uncollectible accounts with balances of $1,600. On the basis of the latest available information, the 2011 provision for bad debts is estimated to be 2.5% of accounts receivable.

Accounting

(a) Based on the above transactions, determine the balance for (1) Accounts Receivable and (2) the Allowance for Doubtful Accounts at December 31, 2011.

(b) Prepare the current assets section of The Flatiron's balance sheet at December 31, 2011.

Analysis

(a) Compute Flatiron