Comprehensive accounting cycle problem (uses percent of revenue allowance method)
The following trial balance was prepared for Lakeview Sales and Service on December 31, 2006, after the closing entries were posted.
|
Account Title
|
Debit
|
Credit
|
|
Cash
|
$ 87,100
|
|
|
Accounts Receivable
|
18,760
|
|
|
Allowance for Doubtful Accounts
|
|
$ 960
|
|
Inventory
|
94,600
|
|
|
Accounts Payable
|
|
44,000
|
|
Common Stock
|
|
90,000
|
|
Retained Earnings
|
|
65,500
|
|
Totals
|
$200,460
|
$200,460
|
Lakeview had the following transactions in 2007:
Purchased merchandise on account for $270,000.
Sold merchandise that cost $215,000 on account for $350,000.
Performed $80,000 of services for cash.
Sold merchandise for $76,000 to credit card customers. The merchandise cost $47,500. The credit card company charges a 5 percent fee.
Collected $360,000 cash from accounts receivable.
Paid $274,000 cash on accounts payable.
Paid $126,000 cash for selling and administrative expenses.
Collected cash for the full amount due from the credit card company.
Loaned $60,000 to R. Shell. The note had an 8 percent interest rate and a one-year term to maturity.
Wrote off $650 of accounts as uncollectible.
Made the following adjusting entries:
Recorded three months' interest on the note at December 31, 2007.
Estimated uncollectible accounts expense to be .5 percent of sales on account.
Required
Prepare general journal entries for these transactions; post the entries, offline on separate paper, to T-accounts; and prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for 2007.