Problem 7-17A (Algo) Accounting for uncollectible accounts: two cycles using the percent of revenue allowance method LO 7-1 [The following information applies to the questions displayed below.] The following transactions apply to Jova Company for Year 1, the first year of operation: 1. Issued $10,500 of common stock for cash. 2. Recognized $65,500 of service revenue earned on account. 3. Collected $58,400 from accounts receivable. 4. Paid operating expenses of $35,000. 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 $73,000 of service revenue on account. 2. Collected $66,400 from accounts receivable. 3. Determined that $910 of the accounts receivable were uncollectible and wrote them off. 4. Collected $200 of an account that had previously been written off. 5. Paid $48,600 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. Reg D1 Req D1 Stmt Reg D1 Reg D1 Stmt Income Stmt of Changes Balance Sheet of Cash Flows Prepare an income statement for Year 1. Financial Statements Income Statement For the Year Ended Year 1 Service revenue Expenses Operating expenses $ 35,000 Uncollectible accounts expense $ 65,500 $ Total expenses Net income 35,000 $ 30,500 Reg D1 Req D1 Stmt Reg Di Req D1 Stmt Income Stmt of Changes Balance Sheet of Cash Flows Prepare the statement of changes in stockholders' equity for Year 1. JOVA COMPANY Statement of Changes in Stockholders' Equity For the Year Ended Year 1 Beginning common stock Plus: Stock issued Ending common stock $ Beginning retained earnings Plus: Net income Ending retained earnings Total stockholders' equity $ 0 $ 0 Reg D1 Req D1 Stmt Req D1 Req D1 Stmt Income Stmt of Changes Balance Sheet of Cash Flows Prepare the balance sheet for Year 1. JOVA COMPANY Balance Sheet As of December 31, Year 1 Assets Cash Accounts receivable Less: Allowance for doubtful accounts Total assets Liabilities Stockholders' equity Common stock Retained earnings 0 $ 0 0 Total stockholders' equity Total liabilities and stockholders' equity $ 0 Reg Di Req Di Stmt Reg Di Req D1 Stmt Income Stmt of Changes Balance sheet of Cash Flows Prepare the statement of cash flows for Year 1. (Amounts to be deducted should b JOVA COMPANY Statement of Cash Flows For the Year Ended Year 1 Cash flows from operating activities: $ 0 Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities $ 0 0 Net cash flow from financing activities Net change in cash Less: Beginning cash balance Ending cash balance $ 0
