Question

The following transactions apply to Jova Company for Year 1, the first year of operation:

1. Issued $15,500 of common stock for cash.
2. Recognized $64,500 of service revenue earned on account.
3. Collected $57,600 from accounts receivable.
4. Paid operating expenses of $36,000.
5. Adjusted accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 2 percent of sales on account.

The following transactions apply to Jova for Year 2:

1. Recognized $72,000 of service revenue on account.
2. Collected $65,600 from accounts receivable.
3. Determined that $890 of the accounts receivable were uncollectible and wrote them off.
4. Collected $300 of an account that had previously been written off.
5. Paid $48,400 cash for operating expenses.
6. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 1 percent of sales on account.

Required
Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2.

c. Organize the transaction data in accounts under an accounting equation for each year.

Answer 1

Accounting Equation
Year 1
JOVA COMPANY
Event	Assets					=	Liabilities	+	Stockholder's Equity			Account Title for retained earnings
	Cash	+	Accounts receivable	-	Allowance		Accounts payable		Common Stock	+	Retained earnings
1.	$15,500								$15,500			NA
2			$64,500								$64,500	Service revenue
3.	$57,600		-$57,600									NA
4	-$36,000										-$36,000	Operating expense
5					$1,290						-$1,290	Bad debt expense
Balance	$37,100		$6,900		$1,290				$15,500		$27,210
Bad debt expense = 64500*2%			$1,290
Year 2
JOVA COMPANY
Event	Assets					=	Liabilities	+	Stockholder's Equity			Account Title for retained earnings
	Cash	+	Accounts receivable	-	Allowance		Accounts payable		Common Stock	+	Retained earnings
Balance	$37,100		$6,900		$1,290				$15,500		$27,210
1			$72,000								$72,000	Service revenue
3.	$65,600		-$65,600									NA
4			-$890		-$890							NA
5a			$300		$300							NA
5b	$300		-$300									NA
6	-$48,400										-$48,400	Operating expense
7					$720						-$720	Bad debt expense
Balance	$54,600		$12,410		$1,420				$15,500		$50,090
Bad debt expense = 72000*1%			$720