Question

Liang Company began operations on January 1, 2016. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows.

2016

1. Sold $1,348,200 of merchandise (that had cost $983,500) on credit, terms n/30.
2. Wrote off $20,700 of uncollectible accounts receivable.
3. Received $673,800 cash in payment of accounts receivable.
4. In adjusting the accounts on December 31, the company estimated that 2.40% of accounts receivable will be uncollectible.

2017

5. Sold $1,510,400 of merchandise (that had cost $1,292,000) on credit, terms n/30.
6. Wrote off $34,400 of uncollectible accounts receivable.
7. Received $1,127,700 cash in payment of accounts receivable.
8. In adjusting the accounts on December 31, the company estimated that 2.40% of accounts receivable will be uncollectible.

  
Required:
Prepare journal entries to record Liang’s 2016 and 2017 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable.) (Round your intermediate calculations to the nearest dollar amount.)
  

Answer 1

Date 2016 Accounts receivable Account titles and explanation Debit Credit 1,348,200 a Sales revenue 1,348,200 (To record the sale of merchandise on account) 2016 Cost of goods sold 983,500 Merchandise invento 983,500 (To record the cost of goods sold) b 2016 Allowance for doubtful accounts 20,700 Accounts receivable 20,700 (To record the write o c 2016 Cash 673,800 Accounts receivable 673,800 (To record the collection of cash on account) d 2016 Bad debt expense 36,389 Allowance for doubtful accounts 36,389 To record the vear-end adiustment Accounts receivable Allowance for doubtful accounts 2016 2016 a. Sales revenue 1,348,200 b. Write off 20,700 673,800 b. Write off 20,700 Bad debt expense 36,389 c. Cash collection End. Bal. in 2016 End. Bal. in 2016 653,700 15,689 2.40% of accounts receivable balance of 653,700-15,689 This, 15,689 should be the ending balance of allowance for doubtful accounts for 2016 Thus, bad debt expense of the year 2016 15,689 20,700 36,389

Date 2017 Accounts receivable Account titles and explanation Debit Credit 1,510,400 a Sales revenue 1,510,400 (To record the sale of merchandise on account) 2017 Cost of goods sold 1,292,000 Merchandise invento 1,292,000 (To record the cost of goods sold) b 2017 Allowance for doubtful accounts 34,400 Accounts receivable 34,400 (To record the write o c 2017 Cash 1,127,700 Accounts receivable 1,127,700 (To record the collection of cash on account d 2017 Bad debt expense 42,759 Allowance for doubtful accounts 42,759 To record the vear-end adiustment Accounts receivable Allowance for doubtful accounts Beg. Bal. in 2017 a. Sales revenue 1,510,400 b. Write off Beg. Bal. in 2017 15,689 42,759 653,700 34,400 1,127,700 b. Write off 34,400 Bad debt expense c. Cash collection End. Bal. in 2017 End. Bal. in 2016 1,002,000 24,048 2.40% of accounts receivable balance of 1,002,000-24,048 This, 24,048 should be the ending balance of allowance for doubtful accounts for 2017 Thus, bad debt expense of the year 2016 24,048+34,400-15,689 42,759