Exercise: Recording receivables and identifying their effect on financial statements

Davos Company performed services on account for $160,000 in 2016. Davos collected $120,000 cash from accounts receivable during 2016, and the remaining $40,000 was collected in cash during 2017.

Required

a. Record the 2016 transactions in T-accounts.
b. Record the 2016 transactions in a horizontal statements model like the following one:

Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow Cash 1 Accts. Rec. 5 Ret. Earn.

c. Determine the amount of revenue Davos would report on the 2016 income statement.

d. Determine the amount of cash flow from operating activities Davos would report on the 2016 statement of cash flows.

e. Open a T-account for Retained Earnings, and close the 2016 Service Revenue account to the Retained Earnings account.

f. Record the 2017 cash collection in the appropriate T-accounts.

g. Record the 2017 transaction in a horizontal statements model like the one shown in Requirement b .

h. Assuming no other transactions occur in 2017, determine the amount of net income and the net cash flow from operating activities for 2017.