Grover Inc uses the allowance method to account for uncollectible accounts expense

Business
Survey of Accounting 6th
Grover Inc. uses the allowance method to account for uncollectible accounts expense.

Grover Inc. uses the allowance method to account for uncollectible accounts expense.

EXERCISES SERIES A #5

Grover Inc. uses the allowance method to account for uncollectible accounts expense. Grover Inc. experienced the following four accounting events in Year 1:
1. Recognized $92,000 of revenue on account.
2. Collected $78,000 cash from accounts receivable.
3. Wrote off uncollectible accounts of $720.
4. Recognized uncollectible accounts expense. Grover estimated that uncollectible accounts expense will be 1 percent of sales on account.

Required

Show the effect of each event on the elements of the financial statements, using a horizontal statements model like the one shown here. Use + for increase, − for decrease, and NA for not affected. In the cash flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is entered as an example.

EXERCISES SERIES A:

Presented below is the income statement of Cowan, Inc.: Sales revenue $380,000 Cost of goods sold 225,000 Gross profit $155,000 Operating expenses 95,000 Income before income taxes 60,000 Income taxes 24,000 Net income $36,000 In addition, the following information related to net changes in working capital is presented: Debit Credit Cash $12,000 Accounts receivable 25,000 Inventories $19,400 Salaries payable (operating expenses) 8,000 Accounts payable 14,000 Income taxes payable 3,000 The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600. Instructions Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: (a) using the indirect method. (b) using the direct method.

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