Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician whoinstalls wiring in new homes. Because the company’s financial statements are prepared only for taxpurposes, Jon uses the direct write-off method. During 2015, its first year of operations, TrevorsonElectronics 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. Tomake matters worse, Jon sold only $5,000 of services during the year.Required:1. Prepare journal entries to record the transactions in 2015 and 2016.2. Using only the information provided (ignore other operating expenses), prepare comparativeincome statements for 2015 and 2016. Was 2015 really as profitable as indicated by its incomestatement? Was 2016 quite as bad as indicated by its income statement? What should Jon do ifhe wants better information for assessing his company’s ability to generate profit?
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:
1. Prepare
2. 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? Was 2016 quite as bad as indicated by its income statement? What should Jon do if
he wants better information for assessing his company’s ability to generate profit?
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