Question

Leach Inc. experienced the following events for the first two years of its operations:

2019:
Wrote off an uncollectible account for $700.
Provided $110,000 of services on account.
Provided $25,000 of services and collected cash.
Collected $92,000 cash from accounts receivable.
Paid $30,000 of salaries expense for the year.
Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.

Prepare an income statement for 2019.

Answer 1

To prepare the income statement for Leach Inc. for 2019, calculate the revenue and expense items. The revenue items include the services provided on account, while the expense items include the uncollectible accounts expense. Deduct the expense items from the revenue items to calculate the net income.

Step-by-step explanation:

To prepare an income statement for the year 2019, we need to consider the revenue and expense items. The revenue items include the services provided on account, which amount to $110,000. The expense items include the uncollectible accounts expense, which can be calculated by multiplying the ending accounts receivable balance by the estimated percentage of uncollectible accounts (5%). So, if the ending accounts receivable balance is $100,000, the uncollectible accounts expense would be $5,000. To prepare the income statement, we deduct the expense items from the revenue items:

Revenue:
Services provided on account: $110,000

Expenses:
Uncollectible accounts expense: $5,000

Net income: $110,000 - $5,000 = $105,000