Patel Service Co. does make a few sales on account but is mostly a cash business. Consequently, it uses the direct write-off method to account for uncollectible accounts. During Year 1, Patel Service Co. earned $32,500 of cash revenue and $8,125 of revenue on account. Cash operating expenses were $21,683. After numerous attempts to collect a $274 account receivable from Sam Stephens, the account was determined to be uncollectible in Year 1.

Required:

a. Show the effects of (1) cash revenue, (2) revenue on account, (3) cash expenses, and (4) write off of the uncollectible account on the financial statements using a horizontal statements model like the one shown here. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element is not affected by the event.

b. What amount of net income did Patel Service Co. report on the Year 1 income statement?

c. Prepare the general journal entries for the four accounting events listed in Requirement a.