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prepare an income statement a statement of changes in stockholders equity a balance 650298

Comprehensive accounting cycle problem (uses percent of revenue allowance method)

The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2010, after the closing entries were posted.





Accounts receivable


Allowance for doubtful accounts

$ 10,000



Accounts payable


Common stock


Retained earnings





Gifts, Etc. had the following transactions in 2011.

1. Purchased merchandise on account for $360,000.

2. Sold merchandise that cost $250,000 for $465,000 on account.

3. Sold for $240,000 cash merchandise that had cost $144,000.

4. Sold merchandise for $180,000 to credit card customers. The merchandise had cost $108,000.

The credit card company charges a 3 percent fee.

5. Collected $526,000 cash from accounts receivable.

6. Paid $430,000 cash on accounts payable.

7. Paid $134,000 cash for selling and administrative expenses.

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

9. Issued a $48,000 face value, interest bearing note with an 8 percent interest rate and a one year term to maturity.

10. Wrote off $7,200 of accounts as uncollectible.

11. Made the following adjusting entries:

(a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account.

(b) Recorded seven months of accrued interest on the note at December 31, 2011.


a. Organize the transaction data in accounts under an accounting equation.

b. Prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for 2011.

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