Question

Patel Service Co. does make a few sales on account but is mostly a cash business. Consequently, it uses the direct write-off method to account for uncollectible accounts. During Year 1, Patel Service Co. earned $35,000 of cash revenue and $4,500 of revenue on account. Cash operating expenses were $19,000. After numerous attempts to collect a $120 account receivable from Sam Stephens, the account was determined to be uncollectible in Year 1. Required a. Show 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 Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). b. What amount of net income did Patel Service Co. report on the Year 1 income statement?

Answer 1

a.

Cash revenue earned will increase by $35000 (Operating Activity)

Credit Revenue will increase Revenue by $4500 (Operating Activity)

Cash expenses will increase by $19000 (Operating Activity)

Accounts Receivables and net income will be decreased by $120 (Operating Activity)

b. $20380

Step-by-step explanation:

a.

Cash revenue earned will increase by $35000 (Operating Activity)

Credit Revenue will increase Revenue by $4500 (Operating Activity)

Cash expenses will increase by $19000 (Operating Activity)

Accounts Receivables and net income will be decreased by $120 (Operating Activity)

b.

Patel Service Co. will report $20380 ($35000 + $4500 - $19000 - $120).