Question

The following transactions apply to Jova Company for Year 1, the first year of operation: Issued $10,000 of common stock for cash. Recognized $210,000 of service revenue earned on account. Collected $162,000 from accounts receivable. Paid operating expenses of $125,000. 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 1 percent of sales on account. The following transactions apply to Jova for Year 2: Recognized $320,000 of service revenue on account. Collected $335,000 from accounts receivable. Determined that $2,150 of the accounts receivable were uncollectible and wrote them off. Collected $800 of an account that had previously been written off. Paid $205,000 cash for operating expenses. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 0.5 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

	Balance sheet									Income statement
	Assets			=	Liabilities	+	Equity			Revenues	-	Expenses	=	Net income
	Cash	+	Accounts receivable		Allowance for accounts receivable		Common stock	+	Retained earnings
Year 1
Stock issue	10,000						10,000
Revenue			210,000							210,000				210,000
Collection	162,000		(162,000)
Expenses	(125,000)											125,000		(125,000)
Allowance					2,100							2,100		(2,100)
Year 1 balance	47,000		48,000		2,100		10,000		82,900	210,000		127,100		82,900
Year 2:
Revenue			320,000							320,000				320,000
Collection	335,000		(335,000)
Wrote off			(2,150)		(2,150)
Collection	800				800
Expenses	(205,000)											205,000		(205,000)
Allowance					1,675							1,675		(1,675)
Year 2 balance	177,800		30,850		2,425		10,000		196,225	320,000		206,675		113,325