Question

Holloway Company earned $18,000 of service revenue on account during Year 1. The company collected $14.000 cash from accounts receivable during Year 1. Required Based on this information alone, determine the following for Holloway Company (Hint Record the events in general ledger accounts under an accounting equation before satisfying the requirements.
a. The balance of the accounts receivable that would be reported on the December 31, Year 1, balance sheet.
b. The amount of net income that would be reported on the Year 1 income statement.
c. The amount of net cash flow from operating activities that would be reported on the Year 1 statement of cash flows.
d. The amount of retained earnings that would be reported on the Year 1 balance sheet.

Answer 1

Answer:

Based on given information alone the answers are:

a. $4,000 as balance of the accounts receivable will be reported on the December 31, Year 1, balance sheet.

b. Net income of $18,000 that will be reported on the Year 1 income statement.

c. Net cash flow of $14,000 from operating activities will be reported on the Year 1 statement of cash flows.

d. Retained earnings of $18,000 will be reported on the Year 1 balance sheet.

Explanation:

a.

Service revenue on account during Year 1 = $18,000

Cash from accounts receivable during Year 1 = $14,000

Balance of the accounts receivable on December 31, Year 1 =  $18,000-$14,000 = $4,000

b. Only $18,000 service revenue earned in year 1 will be reported in the income statement

c. Only one cash transaction of $14,000 received from customer during the year is given in the question, so it will be reported on the Year 1 statement of cash flows.

d. Retained earnings that would be reported on the Year 1 balance sheet is $18,000