Trevorson Electronics is a small company privately owned by Jon Trevorson. an el

Question

Trevorson Electronics is a small company privately owned by Jon Trevorson. an electrician who installs wiring in new homes. Because the company's financial statements are prepared only for tax purposes, Jon uses the direct write-off method. During 2015. its first year of operations. Trevorson Electronics sold $30,000 of services on account. The company collected $26,000 of these receivables during the year, and Jon believed that the remaining $4,000 was fully collectible. In 2016. Jon discovered that none of the $4,000 would be collected, so he wrote off the entire amount. To make matters worse. Jon sold only $5,000 of services during the year. Required: Prepare journal entries to record the transactions in 2015 and 2016. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) Using only the information provided (ignore other operating expenses), prepare comparative income statements for 2015 and 2016. Was 2015 really as profitable as indicated by its income statement?

Explanation / Answer

Treverson Electronics All Amounts in $ Year Particulars Debit Credit 2015 Accounts Receivable 30000 Service Revenue 30000 2015 Cash 26000 Accounts Receivable 26000 2016 Bad Debt Expense 4000 Accounts Receivable 4000 2016 Accounts Receivable 5000 Service Revenue 5000 Comparative Income Statements for 2015 and 2016 2016 2015 Service Revenue 5000 30000 Bad Debt Expense 4000 0 Net Income 1000 30000 From the working, it can be inferred that 2015 was a profitable year for the Company.

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