Question

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

Issued $15,500 of common stock for cash.

Recognized $64,500 of service revenue earned on account.

Collected $57,600 from accounts receivable.

Paid operating expenses of $36,000.

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 2 percent of sales on account.

The following transactions apply to Jova for Year 2:

Recognized $72,000 of service revenue on account.

Collected $65,600 from accounts receivable.

Determined that $890 of the accounts receivable were uncollectible and wrote them off.

Collected $300 of an account that had previously been written off.

Paid $48,400 cash for operating expenses.

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. d-1.

Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.

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
1
Income statement for year 1
JOVA COMPANY
Income statement for year 1
Service revenue	$64,500
Less: Operating expenses	36000
Bad debt expense	1290
Net income	$27,210
2
Statement of changes in stockholder's equity for year 1
	Common Stock	Retained earnings	Total
Beginning Balance	$0	$0	$0
New shares issued	$15,500		$15,500
Net income		$27,210	$27,210
Ending balance	$15,500	$27,210	$42,710
3
JOVA COMPANY
BALANCE SHEET AS ON YEAR 1
Assets
Cash		$37,100
Accounts receivable	$6,900
Less: Allowance for doubtful debt	$1,290
Accounts receivable, net		$5,610
Total assets		$42,710
Liabilities and Equity
Liabilities		0
Shareholders Equity
Common Stock		$15,500
Retained earnings		$27,210
Total liabilities and stockholders equity		$42,710