Problem 5-26 Accounting GBA 5205 Survey of Accounting, fifth edition by edmonds

Question

Problem 5-26

Accounting GBA 5205

Survey of Accounting, fifth edition by edmonds (ISBN: 9781307078473)

LO 5-1, 5-4 Accounting for notes receivable and uncollectible accounts using the percent of sales allowance method Problem 5-26 The following transactions apply to Hooper Co. for 2018, its first year of operations: 1. Issued $60,000 of common stock for cash. 2. Provided $90,000 of services on account. 3. Collected $78,000 cash from accounts receivable. 4. Loaned $20,000 to Mosby Co. on November 30, 2018. The note had a one-year term to maturity and a 6 percent interest rate. 5. Paid $26,000 of salaries expense for the year. 6. Paid a $2,000 dividend to the stockholders 7. Recorded the accrued interest on December 31,2018 (see item 4) 8. Estimated that 1 percent of service revenue will be uncollectible. Required a. Show the effects of these transactions in a horizontal statements model like the one shown as follows. Assets Equity Rev. Exp.Net Inc. Cash Flows Event CashAccts. Rec. Notes Rec.Int. Rec.Com. Stk. + Ret. Earn. -Allow. for Doubtful Accts. b. Prepare the income statement, balance sheet, and statement of cash flows for 2018.

Explanation / Answer

a.

1$20000 x 6% = $1200; $1200 x 1/12 = $100

2$90000 x 1% = $900

b.

Hooper Co. Horizontal Statements Model Balance Sheet Income Statement Statement of Cash Flows Event Assets = Equity Revenue - Expense = Net Income Cash Accts. Rec. Allow Notes Rec. Int. Rec. = Common Stock Retained Earnings 1 60000 = 60000 - = 60000 2 90000 = 90000 90000 - = 90000 3 78000 -78000 = - = 78000 4 -20000 20000 = - = -20000 5 -26000 = -26000 - 26000 = -26000 -26000 6 -2000 = -2000 - = -2000 71 100 = 100 100 - = 100 82 -900 = -900 - 900 = -900 Total 90000 12000 -900 20000 100 = 60000 61200 90100 - 26900 = 63200 90000

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