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 $36,650 of cash revenue and $9,163 of revenue on account Cash operating expenses were $28,075. After numerous attempts to collect a $269 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 Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).
b. What amount of net income did Patel Service Co. report on the Year 1 income statement?