Year 1: Issued $10,000 of common stock for cash. Provided $78,000 of services on account. Provided $36,000 of services and received cash. Collected $69,000 cash from accounts receivable. Paid $38,000 of salaries expense for the year. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible. Year 2: Wrote off an uncollectible account for $650. Provided $88,000 of services on account. Provided $32,000 of services and collected cash. Collected $81,000 cash from accounts receivable. Paid $65,000 of salaries expense for the year. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible. b. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.

a) Journal Entries

YEAR 1

Debit bank $10,000 Credit Common stock $10,000

Debit Accounts receivables $78,000 Credit Service revenue $78,000

Debit Bank $36,000 Credit  Service Revenue $36,000

Debit Bank $69,000 Credit Accounts receivables $69,000

Debit Salary and wages expense $38,000 Credit bank $38,000

Debit Allowance for bad debts adjustments $450 Credit Allowance for bad debts $450

Year 2

Debit Bad debt $650, Credit Accounts receivable $650

Debit accounts receivable $88,000 Credit Service revenue $88,000

Debit Bank $32,000 Credit Service revenue $32,000

Debit Bank $81,000 Credit accounts receivables $81,000

Debit Allowance for bad debts adjustment $295 Credit Allowance for dab debts $295

b) Income statement year 1

Service Revenue (78,000+36000)                                      $114,000

Deduct expenses

Salaries                                                                                 -$38,000

Allowance for bad debts adjustment                                 -$450

Net income                                                                            $75,550

STATEMENT OF CHANGES IN EQUITY

                                               Common stock      Retained earnings total

opening balance                         0                                0                         0

Issued stock                              $10000                                                $10000

Net income                                                             $75,550                 $75,550

closing balance                         $10000                $75,550                 $85,550

BALANCE SHEET

ASSETS

Current Assets

Accounts receivable(9000-450)                                            $8,550

Bank (10,000+36,000+69000-38000)                                  $77,000

total Assets                                                                              $85,550

EQUITY AND LIABILITIES

EQUITY

Common stock                                                                        $10,000

Retained earnings                                                                   $75,550

Total equity and liabilities                                                        $85,550

CASH FLOW STATEMENT

Cash Flow from operating Activities                                        $67,000

Net Income                                                 $75,550

adjust non cash items                                $0

Income before changes in Working Capital

changes in working capital

Accounts receivable (0-8550)                   -8550

income generated from operations         $67,000

Cash Flow from Financing Activities                                        $10,000

common stock issued                                $10,000

cash surplus or deficit                                                                 $77,000

opening cash balance                                                                 $0

closing cash balance                                                                   $77,000

Explanation:

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