The following transactions apply to Jova Company for 2018, the first year of operation: 1) Issued $10,000 of common stock for cash.
2) Recognized $210,000 of service revenue earned on account.
3) Collected $162,000 from accounts receivable.
4) Paid operating expenses of $125,000.
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 1 percent of sales on account.
The following transactions apply to Jova for 2019:
1) Recognized $320,000 of service revenue on account.
2) Collected $335,000 from accounts receivable.
3) Determined that $2,150 of the accounts receivable were uncollectible and wrote them off.
4) Collected $800 of an account that had previously been written off.
5) Paid $205,000 cash for operating expenses.
6) Adjusted the accounts to recognize uncollectible accounts expense for 2019. Jova estimates uncollectible accounts expense will be 0.5 percent of sales on account.
Required
Complete the following requirements for 2018 and 2019. Complete all requirements for 2018 prior to beginning the requirements for 2019.
a. Identify the type of each transaction (asset source, asset use, asset exchange, or claims exchange).
b. 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 NA for not affected. 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.
Event No. Assets = Liab + Equity Rev - Exp. = Net Inc. Cash Flow
1 + NA + + NA + NA
c. Organize the transaction data in accounts under an accounting equation.
d. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows.