Problem 7-26A Lakeview Sales and Service Comprehensive accounting cycle problem (uses percent of revenue allowance method) L.O. 2, 4, 5

Problem 7-26A Comprehensive accounting cycle problem (uses percent of revenue allowance method) L.O. 2, 4, 5

Problem 7-26A Lakeview Sales and Service

Chapter 7

Problem 7-6A                                                                                                                SOLUTION

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:

1. Purchased merchandise on account for $270,000.

2. Sold merchandise that cost $215,000 on account for $350,000.

3. Performed $80,000 of services for cash.

4. Sold merchandise for $76,000 to credit card customers. The merchandise cost $47,500. The credit card company charges a 5 percent fee.

5. Collected $360,000 cash from accounts receivable.

6. Paid $274,000 cash on accounts payable.

7. Paid $126,000 cash for selling and administrative expenses.

8. Collected cash for the full amount due from the credit card company.

9. Loaned $60,000 to R. Shell. The note had an 8 percent interest rate and a one-year term to maturity.

10. Wrote off $650 of accounts as uncollectible.

11. Made the following adjusting entries:

a. Recorded three months’ interest on the note at December 31, 2007.

b. 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.

Amounts in parentheses do not require a negative sign in front of them.
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