Problem 5-27      Accounting for notes receivable and uncollectible accounts using the percent of sales allowance method

The following transactions apply to Bialis Co. for 2012, its first year of operations.

1.     Issued $100,000 of common stock for cash.

2.     Provided $86,000 of services on account.

3.     Collected $75,000 cash from accounts receivable.

4.     Loaned $10,000 to Horne Co. on October 1, 2012. The note had a one-year term to maturity and an 8 percent interest rate.

5.     Paid $32,000 of salaries expense for the year.

6.     Paid a $2,000 dividend to the stockholders.

7.     Recorded the accrued interest on December 31, 2012 (see item 4).

8.     Uncollectible accounts expense is estimated to be 1 percent of service revenue on account.

 

a.     Show the effects of the above transactions in a horizontal statements model like the one shown below.

 

 

 

 

 

b.     Prepare the income statement, balance sheet, and statement of cash flows for 2012.