Answer:
<u>Year 1: </u>
a. Issued $17,000 of common stock for cash. ⇒ ASSET SOURCE
Dr Cash 17,000
Cr Common stock 17,000
b. Recognized $63,000 of service revenue earned on account. ⇒ ASSET SOURCE
Dr Accounts receivable 63,000
Cr Service revenue 63,000
c. Collected $56,400 from accounts receivable. ⇒ ASSET EXCHANGE
Dr Cash 56,400
Cr Accounts receivable 56,400
d. Paid operating expenses of $36,600. ⇒ ASSET USE
Dr Operating expense 36,600
Cr Cash 36,600
e. 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. ⇒ ASSET USE
Dr Bad debt expense 132
Cr Allowance for doubtful accounts 132
<u>Year 2:</u>
a. Recognized $70,500 of service revenue on account. ⇒ ASSET SOURCE
Dr Accounts receivable 70,500
Cr Service revenue 70,500
b. Collected $64,400 from accounts receivable. ⇒ ASSET EXCHANGE
Dr Cash 64,400
Cr Accounts receivable 64,400
c. Determined that $860 of the accounts receivable were uncollectible and wrote them off. ⇒ ASSET EXCHANGE
Dr Bad debt expense 860
Cr Accounts receivable 860
d. Collected $300 of an account that had previously been written off. ⇒ ASSET EXCHANGE
Dr Accounts receivable 300
Cr Bad debt expense 300
Dr Cash 300
Cr Accounts receivable 300
e. Paid $48,100 cash for operating expenses. ⇒ ASSET USE
Dr Operating expense 48,100
Cr Cash 48,100
f. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 1 percent of sales on account. ⇒ ASSET USE
Dr Bad debt expense 117
Cr Allowance for doubtful accounts 117
<u>trial balance year 1</u>
Dr Cash 36,800
Dr Accounts receivable 6,468
Cr Common stock 17,000
Cr Service revenue 63,000
Dr Operating expense 36,600
Dr Bad debt expense 132
Income Statement
<u>Year 1</u>
Service revenue $63,000
Expenses:
- Operating expense $36,600
- Bad debt expense $132 <u>($36,732)</u>
Net income $26,268
Balance Sheet
<u>Year 1</u>
Assets:
Cash $36,800
Accounts receivable $6,468
Total Assets $43,268
Equity:
Cr Common stock 17,000
Retained earnings $26,268
Total equity $43,268
Statement of changes in stockholders' equity
<u>Year 1</u>
Beginning balance $0
Common stock issued $17,000
Net income <u> $26,268</u>
Ending balance $43,268
<u>trial balance year 2</u>
Dr Cash 16,600
Dr Accounts receivable 5,123
Cr Service revenue 70,500
Dr Operating expense 48,100
Dr Bad debt expense 677
Income Statement
<u>Year 2</u>
Service revenue $70,500
Expenses:
- Operating expense $48,100
- Bad debt expense $677 <u>($48,777)</u>
Net income $21,723
Statement of changes in stockholders' equity
Beginning balance:
Common stock issued $17,000
Retained earnings $26,268
Net income <u> $21,723</u>
Ending balance $64,991
Balance Sheet
<u>Year 2</u>
Assets:
Cash $53,400
Accounts receivable $11,591
Total Assets $64,991
Equity:
Cr Common stock 17,000
Retained earnings $47,991
Total equity $64,991
Statement of cash flows
<u>Year 2</u>
Net income $21,723
Adjustments to net income:
Increase in accounts receivable <u>($5,123)</u>
Net cash from operating activities $16,600
Net cash increase $16,600
Beginning cash balance <u>$36,800</u>
Ending cash balance $53,400
