Geary, Inc. had the following sales during Year 2:Cash sales$ 240,000Credit sales$ 1,200,000Credit card sales$ 4,000,000Geary also had the following beginning and ending balances in the receivables accounts:BeginningEndingCredit sales$ 240,000$ 180,000Credit card sales$ 800,000$ 840,000Geary, who uses the allowance method of accounting for uncollectible accounts, estimated that 3% of the credit sales will go uncollected. The credit card company charges Geary a 4% service charge.Required:a) How will Geary's year-end adjusting entry for uncollectible accounts expense affect the company's financial statements?AssetsLiabilitiesEquityRevenuesExpensesNet IncomeCashFlow???????b) How will the entry to record the credit card sales affect the company's financial
statements?AssetsLiabilitiesEquityRevenuesExpensesNet IncomeCashFlow???????c) What is Geary's cash flow from customers for the year?
What will be an ideal response?
a)
| Assets | Liabilities | Equity | Revenues | Expenses | Net Income | Cash Flow |
| (36,000) | ? | (36,000) | ? | 36,000 | (36,000) | ? |
| Assets | Liabilities | Equity | Revenues | Expenses | Net Income | Cash Flow |
| 3,840,000 | ? | 3,840,000 | 4,000,000 | 160,000 | 3,840,000 | ? |
| Cash sales | $240,000 |
| Credit sales | 1,260,000 |
| Credit card sales | 3,800,000 |
| Cash flow from customers | $5,300,000 |
| ? | ? |
b) $4,000,000 credit card sales × 4% = $160,000 credit card expense
c) $240,000 beg. receivables from credit sales + $1,200,000 credit sales - collections from credit sales = $180,000 ending receivables from credit sales; collections from credit sales = $1,260,000 cash collected from credit sales
$800,000 beg. receivables from credit card sales + $3,840,000 incr. in receivables from credit card sales - collections from credit card sales = $840,000 ending receivables from credit card sales; collections from credit card sales = $3,800,000
Cash inflows from operating activities: $240,000 cash sales + $1,260,000 collections from credit sales + $3,800,000 collections from credit card sales = $5,300,000
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