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

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

  1. Issued $17,500 of common stock for cash.

  2. Recognized $62,500 of service revenue earned on account.

  3. Collected $56,000 from accounts receivable.

  4. Paid operating expenses of $36,800.

  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 $70,000 of service revenue on account.

  2. Collected $64,000 from accounts receivable.

  3. Determined that $850 of the accounts receivable were uncollectible and wrote them off.

  4. Collected $100 of an account that had previously been written off.

  5. Paid $48,000 cash for operating expenses.

  6. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 1.0 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.

  1. Identify the type of each transaction (asset source, asset use, asset exchange, or claims exchange).

  2. Show the effect of each transaction on the elements of the financial statements, using a horizontal statements model like the one shown here. Use + for increase, − for decrease, and leave the cell blank if there is no effect. Also, in the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is entered as an example. (Hint: Closing entries do not affect the statements model.) (If there is no effect on the Statement of Cash Flow, leave the cell blank. Not all cells will require entry.)

  3. Organize the transaction data in accounts under an accounting equation.

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

  5. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 2.

Solutions

Expert Solution


ekkarill92 answered 1 year ago
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