During the first year of operation, 2018, McGinnis Appliance recognized $346,000

Question

During the first year of operation, 2018, McGinnis Appliance recognized $346,000 of service revenue on account. At the end of 2018, the accounts receivable balance was $68,015. Even though this is his first year in busines about 6 percent of the ending balance. s, the owner believes he will collect all but Required a. What amount of cash was collected by McGinnis during 2018? b. Assuming the use of an allowance system to account for uncollectible accounts, what amount should McGinnis record as uncollectible accounts expense in 2018 c. What is the net realizable value of receivables at the end of 2018 d. Show the effect of these transactions on the financial statements by recording the appropriate amounts in a horizontal statements model like the one shown here. When you record amounts in the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (A), or financing activity (FA). The letters NA indicate that an element is not affected by the event

Explanation / Answer

a Cash collected =total service revenue on account- ending accounts receivable balance =346000-68015 277985 b Uncollectible accoutns expense = Ending accounts receivable* allownace% = 68015*6% 4,081 c Net realisable value of receivables = Ending accounts receivable- Allowance =277985-4081 273904 MCGINNIS APPLIANCE Accounting Equstion for the year 2018 Event No Assets = Liabilities +Equity Income statement Satement of cash flows Cash +Accounts receivables - Allowance Revenue -Expenses =Net income 1 346000 346000 2 277985 -277985 277985 3 4081 4081

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